CruxBusiness Laws

A contract of indemnity (s. 124) is one in which one party undertakes to protect the other against loss, where that loss arises from the promisor's own conduct or from the conduct of anyone else. The person who promises is the indemnifier; the person protected is the indemnity-holder (or the indemnified).

Essentials:

1. Two parties: the indemnifier and the indemnity-holder. No third person is a party.
2. A promise to make good a loss that the indemnity-holder may suffer.
3. Loss caused by human conduct: the conduct of the promisor or of any other person. Read strictly, s. 124 leaves out loss from an accident or an act of God that no person caused; courts have sometimes applied the wider English rule, under which every loss is covered.
4. Express or implied. The promise may be in words, or inferred from the parties' conduct and the circumstances.
5. A valid contract in every other way: free consent, competent parties, lawful object. A promise to make good the fine a person will pay for assaulting someone is unenforceable, because the object is unlawful.

Fire and marine insurance are contracts of indemnity: the insurer pays the loss actually suffered. Life insurance is not, since it pays a fixed sum on death and no loss is measured.

Rights when sued (s. 125). An indemnity-holder who acts within the scope of his authority can recover from the indemnifier:

1. Damages he is made to pay in any suit on a matter the promise covers.
2. Costs he is made to pay in such a suit, if in bringing or defending it he did not disobey the indemnifier's orders and acted as a prudent person would have acted with no indemnity to fall back on, or if the indemnifier authorised him to bring or defend it.
3. Sums paid under a compromise of such a suit, if the compromise did not go against the indemnifier's orders and was one a prudent person would have made without an indemnity, or if the indemnifier authorised it.

When the indemnifier's liability begins. The Act is silent. Courts have held that it begins as soon as the indemnity-holder's own liability becomes absolute and certain: once a court has ordered him to pay, he can call on the indemnifier, without first paying out of his own pocket.

A contract of guarantee (s. 126) is a promise to carry out a third person's promise, or to meet his liability, if he defaults. It has three parties:

• the surety, who gives the guarantee;
• the principal debtor, for whose default it is given;
• the creditor, to whom it is given.

A guarantee may be oral or written. It rests on three contracts: the main contract between creditor and principal debtor; the surety's promise to the creditor; and an implied promise by the principal debtor to indemnify the surety if the surety has to pay (s. 145).

Essentials:

1. An existing, enforceable liability. There must be a debt or promise to guarantee, enforceable by law and not time-barred. Without a principal debt there is no guarantee.
2. Consideration (s. 127). Anything done or promised for the principal debtor's benefit is sufficient consideration for the surety's promise; the surety himself need get nothing. A creditor's promise to give goods on credit, or to hold off suing the debtor, will do. A promise made after the goods were already supplied, for nothing in return, is void (s. 127, illustration (c)).
3. Competent surety. The surety must be competent to contract. The principal debtor need not be: a guarantee of a minor's debt can still bind the surety.
4. Consent of all three parties, free of misrepresentation and concealment. A guarantee obtained by the creditor's misrepresentation on a material point, or by his silence about material circumstances, is invalid (ss. 142–143).
5. Any agreed condition met. If the surety signed on the term that the creditor would not act on it until a named co-surety joined, and that person never joins, the guarantee is not valid (s. 144).

Co-extensive (s. 128). The surety is liable to the same extent as the principal debtor, unless the contract says otherwise. He answers for the very debt the debtor owes: the principal sum, and also the interest and charges that have become due on it (s. 128, illustration).

What this means in practice:

1. Secondary, but directly enforceable. The surety's liability arises on the debtor's default. Once the debt is due and unpaid, the creditor may sue the surety straight away. He need not first sue the principal debtor, give him notice or exhaust his remedies against him, unless the guarantee says so.
2. It can be limited. The contract may cap the surety's liability at a fixed sum or restrict it to part of the debt; he is then liable only up to that limit.
3. No greater than the debtor's. Ordinarily the surety owes no more than the debtor. If the debtor is not liable because of a defect in the document itself, the surety is not liable either.
4. Cases where the surety stays liable though the debtor is not. A surety for a minor's debt is bound even though the minor is not. A debtor's discharge by operation of law, as on his insolvency, does not discharge the surety.
5. Two debtors, one secretly a surety (s. 132). Where two persons both undertake a liability to a third person and agree only between themselves that one is liable only if the other defaults, each remains fully liable to the third person, even if he knew of their private arrangement.

Revoking a continuing guarantee.

• By notice (s. 130). The surety may revoke it at any time for future transactions by giving notice to the creditor. He stays liable for transactions already made.
• By the surety's death (s. 131). Unless the contract says otherwise, death revokes a continuing guarantee for future transactions. His estate remains liable for transactions made before his death.

A guarantee for a stated number of supplies is specific: once those supplies are paid for, later supplies are not covered (s. 129, illustration (c)).

Against the principal debtor.

1. Subrogation (s. 140). Once the guaranteed debt is due, or the debtor has defaulted on a guaranteed duty, and the surety has paid or performed all he is liable for, he takes over all the rights the creditor had against the debtor. He steps into the creditor's shoes, including the creditor's securities.
2. Indemnity (s. 145). Every guarantee carries an implied promise by the debtor to indemnify the surety. The surety recovers whatever he has rightfully paid under the guarantee, but nothing he paid wrongfully. If he defended a suit on reasonable grounds and still had to pay, he also recovers the costs; if he had no real ground to defend, he gets the debt but not the costs. He can never recover more than the debtor actually owed.

Against the creditor.

1. Benefit of securities (s. 141). The surety is entitled to every security the creditor held against the debtor when the guarantee was given, whether or not the surety knew of it. If the creditor loses such a security, or gives it up without the surety's consent, the surety is discharged to the extent of its value. A security the creditor obtained only later, and then gave up, does not discharge him (s. 141, illustration (c)).
2. Set-off. When sued, the surety may set off any claim the principal debtor has against the creditor.
3. Reduction on the debtor's insolvency. If the debtor becomes insolvent and the creditor receives a dividend from his estate, the surety is liable only for the balance.

Against co-sureties. Persons who guarantee the same debt or duty are co-sureties.

1. Equal contribution (s. 146). Unless they have agreed otherwise, co-sureties share the whole debt, or whatever part the debtor leaves unpaid, equally. It does not matter whether they are bound jointly or severally, by the same contract or by different ones, or whether each knew of the others.
2. Different limits (s. 147). Co-sureties bound for different sums pay equally, as far as each one's limit allows.
3. Release of one (s. 138). If the creditor releases one co-surety, the others are not discharged, and the one released still owes his share to them.
4. Share in securities. If one co-surety holds a security from the debtor for the guaranteed debt, the others are entitled to share its benefit.

The law treats the surety as a favoured debtor: he takes on another's debt for no benefit of his own, so anything the creditor does that prejudices him without his consent discharges him. He is discharged in three ways.

1. By revocation.

• Notice of revocation of a continuing guarantee, for future transactions (s. 130).
• Death of the surety, for future transactions under a continuing guarantee, unless the contract says otherwise (s. 131).
• Novation: a new contract replacing the old one discharges the surety under the old one (s. 62).

2. By the creditor's conduct.

The surety is not discharged:

• where the creditor agrees with a third person, not with the debtor, to give the debtor time (s. 136);
• by the creditor's mere forbearance to sue the debtor, unless the guarantee provides otherwise (s. 137);
• by the creditor's release of a co-surety; the other co-sureties stay bound (s. 138).

3. By invalidation of the guarantee.

• Misrepresentation on a material part of the transaction, made by the creditor or with his knowledge and assent (s. 142).
• Concealment: the creditor kept silent about material circumstances (s. 143).
• A co-surety on whose joining the guarantee was conditional never joins (s. 144).

A bailment (s. 148) is the delivery of goods by one person to another for a purpose, on a contract that, once the purpose is served, the goods will be returned or otherwise dealt with as the person who delivered them directs. The person who delivers is the bailor; the person who receives is the bailee. A person who already holds another's goods and then agrees to hold them as a bailee becomes a bailee, and the owner a bailor, even without a fresh delivery (s. 148, Explanation).

Essentials:

1. A contract, express or implied. No consideration is needed: a free loan of goods is still a bailment.
2. Delivery of possession. Delivery may be actual (handing over the goods) or constructive: anything that puts the goods in the possession of the bailee, or of someone authorised to hold them for him, will do (s. 149). Handing over the keys of a car for repair is delivery of the car.
3. Movable goods only. Land and buildings cannot be bailed, and neither can money: a bank deposit is not a bailment, because the bank does not return the same notes.
4. For a purpose, express or implied: safe custody, repair, carriage, hire, use.
5. Return of the same goods, in their original form or altered as agreed, or disposal as the bailor directs. If different goods may be returned, even goods of higher value, there is no bailment.
6. Possession passes, ownership does not. Custody without possession is not bailment: a servant holding his employer's goods is not a bailee, and ornaments in a bank locker whose key the customer keeps are not bailed to the bank.

The kind matters because several rules turn on it: the bailor's liability for faults (s. 150), who bears expenses (s. 158), and the lender's right to take back goods lent free (s. 159).

The bailor's duties are, seen from the other side, the bailee's rights.

1. Disclose known faults (s. 150). The bailor must tell the bailee of faults in the goods that he knows of and that seriously interfere with their use or expose the bailee to extraordinary risk. If he does not, he must make good damage that arises to the bailee directly from those faults. For hire, he is liable for such damage whether or not he knew of the fault.
2. Bear necessary expenses (s. 158). Where the bailee is to keep, carry or work on the goods for the bailor without pay, the bailor must repay the necessary expenses the bailee incurs for the bailment. In a bailment for reward, the bailor bears extraordinary expenses, and the bailee the ordinary ones.
3. Indemnify on early recall of a free loan (s. 159). A lender of goods free of charge may demand them back at any time, even before the agreed time or purpose. But if the borrower, relying on the loan for the agreed time or purpose, has acted so that early return causes him a loss greater than the benefit he has had from the loan, the lender must make good the excess.
4. Indemnify for defective title (s. 164). The bailor must make good any loss the bailee suffers because the bailor had no right to bail the goods, to receive them back or to give directions about them.
5. Take the goods back when the time has run out or the purpose is served. If he refuses delivery tendered at the proper time, the bailee may claim the necessary expenses of keeping the goods safe after that.

Further rights of the bailee:

• Delivery to one joint owner (s. 165). If several joint owners bailed the goods, the bailee may return them to any one of them, unless agreed otherwise.
• Protection on good-faith return (s. 166). If the bailor had no title and the bailee, in good faith, returns the goods to him or as he directs, the bailee is not liable to the true owner.
• A court's ruling on title (s. 167). If someone other than the bailor claims the goods, that person may apply to the court to stop delivery to the bailor and to decide who owns them.
• Lien for his charges (ss. 170–171; sub-topic 6) and a suit against a wrongdoer (s. 180; sub-topic 4).

The bailee's duties are, seen from the other side, the bailor's rights.

1. Take reasonable care (s. 151). The bailee must look after the goods as carefully as an ordinarily prudent person, placed as he is, would look after goods of his own that match them in bulk, quality and value. If he has taken that care, he is not liable for their loss, destruction or deterioration, unless a special contract makes him liable (s. 152).
2. No act inconsistent with the bailment (s. 153). If the bailee does any act with the goods that is inconsistent with the conditions of the bailment, the bailor may treat the bailment as ended: the contract becomes voidable at the bailor's option.
3. No unauthorised use (s. 154). If he uses the goods in a way the terms do not allow, he must compensate the bailor for any damage to them arising from or during that use, even if he used them carefully.
4. No mixing (ss. 155–157).
   • Mixed with the bailor's consent: both own the mixture in proportion to their shares (s. 155).
   • Mixed without consent, but separable: each keeps his own goods; the bailee bears the cost of separating them and any damage from the mixing (s. 156).
   • Mixed without consent and not separable: the bailee must compensate the bailor for the loss of his goods (s. 157).
5. Return the goods (s. 160). He must return them, or deliver them as the bailor directs, without being asked, as soon as the time has expired or the purpose is accomplished. If, by his default, they are not returned at the proper time, he is responsible for any loss, destruction or deterioration from then on, however it happens (s. 161).
6. Hand over increase or profit (s. 163). Unless otherwise agreed, any increase or profit from the goods goes to the bailor: the calf born to a cow left in someone's care goes back with the cow.
7. Not deny the bailor's title. The bailee holds the goods for the bailor and cannot set up a title adverse to his.

Rights of the bailor, which follow:

• to sue the bailee to enforce these duties and claim compensation for their breach (negligence, unauthorised use, unauthorised mixing, late return);
• to end the bailment on any act inconsistent with its conditions (s. 153);
• to demand back goods lent free at any time (s. 159), subject to the indemnity in sub-topic 3;
• to sue a wrongdoer (s. 180).

Suit against a wrongdoer (ss. 180–181). Where an outsider wrongfully takes the goods away from the bailee, keeps him from using them, or damages them, the bailee has every remedy the owner would have had, and either the bailor or the bailee may sue the third person. Whatever is recovered is shared between them according to their respective interests.

There is no contract between the owner and a finder, but the law puts the finder in a bailee's position. Whoever finds goods that belong to someone else and takes charge of them carries a bailee's responsibility (s. 71).

Duties of the finder, as a bailee:

• take the care of the goods that a person of ordinary prudence would take of his own goods of the same kind;
• not use them for his own purposes, and not mix them with his own;
• take reasonable steps to find the owner; and
• return them to the owner on demand.

Rights of the finder.

1. Retain for expenses (s. 168). He cannot sue the owner for the trouble and expense he voluntarily took to preserve the goods and trace the owner, but he may keep the goods until he is paid that compensation.
2. Reward (s. 168). If the owner has offered a specific reward for the return of lost goods, the finder may sue for it and keep the goods until he gets it.
3. Sale (s. 169). If the thing found is commonly bought and sold, the finder may sell it when both of these hold:
   • the owner cannot be found with reasonable diligence, or he refuses on demand to pay the finder's lawful charges; and
   • the thing is in danger of perishing or of losing most of its value, or the finder's lawful charges for it amount to two-thirds of its value.

A lien is the right to keep another's goods that are in one's possession until a claim is paid. It is a right to retain, not to sell. It lasts only as long as possession; it is lost when the goods are given up, and the parties may exclude it by contract.

Particular lien (s. 170). A bailee who, in line with the purpose of the bailment, has done work involving labour or skill on the goods may keep those goods until he is paid for that work, unless the contract says otherwise. Its features:

• it covers only the goods worked on, and only the charge for that work;
• labour or skill must have been spent on them: a mere keeper of goods has no particular lien under s. 170;
• it is excluded where the bailee has agreed to give credit for his charge: a tailor who promised to hand over a coat on completion and wait three months for payment cannot hold the coat (s. 170, illustration (b)).

General lien (s. 171). Five classes of bailee hold this wider right: bankers, factors, wharfingers, attorneys of a High Court, and policy-brokers. Unless the contract excludes it, each may keep any goods bailed to him as security for a general balance of account, not only for the charge on those goods. No one else has a general lien unless there is an express contract giving one.

A pledge (s. 172) is a bailment of goods as security for the payment of a debt or the performance of a promise. The bailor is the pawnor and the bailee the pawnee. Every pledge is a bailment, but not every bailment is a pledge.

Essentials:

1. All the essentials of a bailment: a contract, delivery of possession (actual or constructive), movable goods, return when the purpose is served.
2. Purpose of security: the goods are delivered to secure a debt or the performance of a promise.
3. Goods in existence, delivered to the pawnee. A promise to deliver goods in future is not yet a pledge.

The guideline leaves the detailed rights and duties of pawnor and pawnee out of the course. The core, which the comparison with bailment needs:

• the pawnee may keep the goods for the debt or promise, its interest, and his necessary expenses of keeping or preserving them (s. 173), but not for any other debt unless so agreed; such an agreement is presumed for later advances he makes (s. 174);
• extraordinary expenses he incurs to preserve the goods can be recovered from the pawnor, but they give him no right to keep the goods (s. 175);
• if the pawnor defaults at the stipulated time, the pawnee may either sue on the debt or promise and keep the goods as collateral security, or sell the goods after giving the pawnor reasonable notice of the sale. A shortfall on sale is still owed by the pawnor; a surplus must be paid over to him (s. 176);
• until the actual sale, the defaulting pawnor may redeem the goods by paying what is due and the expenses his default caused (s. 177).

Normally only the owner, or someone he authorises, can pledge goods. To protect honest lenders in trade, the Act allows certain non-owners to make a valid pledge.

1. Mercantile agent (s. 178). A mercantile agent who, with the owner's consent, is in possession of goods or of the documents of title to them, and pledges them while acting in the ordinary course of a mercantile agent's business, makes a pledge as valid as if the owner had expressly authorised it, provided the pawnee acts in good faith and, at the time, has no notice that the pawnor lacks authority. The terms "mercantile agent" and "documents of title" carry their meaning under the Sale of Goods Act, 1930.
2. Person in possession under a voidable contract (s. 178A). A pawnor who got possession of the goods under a contract voidable for coercion, fraud, misrepresentation (s. 19) or undue influence (s. 19A) gives the pawnee a good title if the contract had not been rescinded when he pledged them, and the pawnee acts in good faith without notice of the defect in the pawnor's title.
3. Person with a limited interest (s. 179). A person with only a limited interest in goods can pledge them, but the pledge is valid only to the extent of that interest.
4. Co-owner in possession. A co-owner left in sole possession of the goods with the other owners' consent can make a valid pledge of them.
5. Seller or buyer in possession. A seller left in possession after the sale, or a buyer who has obtained possession with the seller's consent before property passes, can make a valid pledge to a pawnee who takes in good faith without knowledge of the defect in title (U4, transfer of title by non-owners).

An agent (s. 182) is someone engaged to act for another person, or to stand for that person in dealings with third persons. The person for whom the act is done, or who is represented, is the principal. The Act defines agent and principal but not "agency"; agency is the relationship between them.

The test of agency is whether the person can bind the other and make him answerable to third persons, creating privity of contract between them. The rule rests on the maxim qui facit per alium facit per se: he who acts through another acts himself.

Essentials:

1. Agreement, express or implied, between principal and agent (or a situation the law treats as one, such as estoppel or necessity).
2. A competent principal (s. 183). Any person of the age of majority under the law that applies to him, and of sound mind, may employ an agent. A minor or a person of unsound mind cannot.
3. The agent need not be competent (s. 184). As between principal and third persons anyone may be an agent, and the principal is bound by his acts. But a minor or a person of unsound mind cannot be made answerable to the principal for his own conduct as agent.
4. No consideration needed (s. 185).
5. The agent acts for the principal, with power to create legal relations between the principal and third persons.

The principal-agent relationship is one of trust (fiduciary): the agent must act in good faith for the principal, and the principal is bound by what the agent does within his authority.

An agent's authority may be express or implied (s. 186). Agency arises in these ways:

Implied agency. A manager who regularly orders stock for his employer's shop in the employer's name, and pays from the employer's funds with the employer's knowledge, has implied authority to order such stock (s. 187, illustration).

Agency by estoppel (s. 237). Where an agent acts without authority, the principal is still bound if, by his words or conduct, he made the third person believe the act was within the agent's authority. He is estopped (prevented) from denying it. Essentials:

1. the principal made a representation, by words or conduct;
2. it held out the agent as having authority he did not in fact have;
3. the third person was induced by it; and
4. the third person believed it and dealt with the agent on that belief.

Agency by necessity (s. 189). In an emergency an agent may do whatever a person of ordinary prudence would do in his own case, in like circumstances, to protect the principal from loss. Conditions:

1. the agent could not communicate with the principal in the time available;
2. there was a real and pressing commercial necessity to act at once;
3. he acted in good faith and for the principal's benefit;
4. he took the most reasonable and practicable course open; and
5. he was in possession of the principal's goods that were the subject of the act.

Ratification (s. 196) is approval, after the event, of an act done on a person's behalf without his knowledge or authority. He may choose to ratify or to disown the act. If he ratifies, the same effects follow as if he had authorised it in the first place. Ratification therefore relates back to the date of the act: it is equivalent to prior authority.

Conditions of a valid ratification:

1. Express or implied (s. 197). It may be in words, or inferred from conduct: reselling goods bought for you without authority, or accepting interest on your money lent without authority, ratifies the purchase or the loan.
2. Act done on behalf of the principal (s. 196). The person must have acted for the one who ratifies, not on his own account.
3. Full knowledge (s. 198). A ratification made by someone whose knowledge of the facts is materially defective is not valid.
4. The whole transaction (s. 199). Ratifying an unauthorised act ratifies the whole transaction it was part of. The principal cannot keep the benefits and reject the burdens.
5. No injury to third persons (s. 200). Ratification cannot make an act subject a third person to damages, or end a third person's right or interest, where the act would have had that effect only if authorised. An unauthorised notice to quit given to a tenant cannot be ratified so as to bind the tenant.
6. A lawful act. Only an act the principal could lawfully have authorised can be ratified; a void or illegal act cannot be.
7. Within a reasonable time, and communicated to the other party.

Express and implied authority (s. 187). Authority is express when given by words, spoken or written; implied when inferred from the circumstances, including words and the ordinary course of dealing.

In normal circumstances (s. 188):

• an agent authorised to do an act may do every lawful thing necessary to do it: an agent appointed to recover a debt may sue for it and give a valid receipt;
• an agent authorised to carry on a business may do every lawful thing necessary for it, or usually done in the course of conducting it: an agent running a boat-building business may buy timber and hire workers.

In an emergency (s. 189). The agent may do all that a person of ordinary prudence would do in his own case, in similar circumstances, to protect the principal from loss (conditions in sub-topic 2). An agent for sale may have the goods repaired if needed; an agent told to forward perishable goods may sell them if they would spoil on the journey.

When the agent exceeds his authority (ss. 227–228; sub-topic 6), the principal is bound only by the part within it, if that part can be separated.

The rule (s. 190). Agency rests on personal trust, so an agent may not employ another to do acts he has expressly or impliedly undertaken to do himself (delegatus non potest delegare: a delegate cannot delegate). The exceptions are where:

• the ordinary custom of trade allows a sub-agent to be employed;
• the nature of the agency requires a sub-agent to be employed;
• the terms of the appointment contemplated it; or
• an unforeseen emergency in the course of the agency makes delegation necessary.

A sub-agent (s. 191) is someone the original agent engages, and who works under that agent's control, in the business of the agency.

Sub-agent properly appointed (s. 192):

• the principal is represented by the sub-agent as regards third persons, and is bound by his acts as if he had appointed him himself;
• the agent is responsible to the principal for the sub-agent's acts;
• the sub-agent is responsible to the agent, and not to the principal, except for fraud or wilful wrong.

Sub-agent appointed without authority (s. 193):

• the agent stands as principal to that person, and answers for that person's acts to the principal as well as to third persons;
• the principal is neither represented by nor responsible for him;
• that person owes nothing to the principal; he answers only to the agent.

Substituted agent (s. 194). Where the agent has authority, express or implied, to choose someone to act for the principal, and he does so, that person is not a sub-agent but the principal's own agent for the part of the business given to him. In choosing him the agent must use the discretion a person of ordinary prudence would use in his own case; if he does, he is not responsible for that person's acts or negligence (s. 195).

When the agent's authority ends, so does the authority of every sub-agent he appointed (s. 210).

General rule (s. 226). Contracts made, and obligations incurred, through an agent can be enforced, and have the same legal results, as if the principal had made them himself. A third person who pays the agent money due to the principal, where the agent has authority to receive it, is discharged.

Agent exceeding authority.

• Separable (s. 227). If the part within authority can be separated from the part beyond it, only the part within authority binds the principal.
• Not separable (s. 228). If it cannot be separated, the principal need not recognise the transaction at all.

Authority by holding out (s. 237). Even for an unauthorised act, the principal is bound if his words or conduct led the third person to believe the act was within the agent's authority (sub-topic 2).

Notice to the agent (s. 229). Notice given to, or information obtained by, the agent in the course of the principal's business has the same effect, between the principal and third persons, as if the principal had received it. Information the agent picked up before the agency began, or outside its business, does not count.

Agent's misrepresentation or fraud (s. 238). Misrepresentation or fraud by an agent acting in the course of the principal's business affects the agreement as if the principal had committed it: the contract is voidable at the third person's option. If the agent acted outside his authority, the principal is not affected.

Undisclosed principal (ss. 231–232). Where the other party contracts with an agent without knowing, or having any reason to suspect, that he is only an agent:

• the principal may require performance, but the third person has against him the same rights he would have had against the agent as if the agent were the principal;
• the principal takes the contract subject to the rights and obligations between the agent and the third person, such as a set-off of a debt the agent owed;
• if the principal reveals himself before the contract is completed, the third person may refuse to go on if he shows he would not have contracted had he known who the principal was, or that the agent was not the principal.

General rule (s. 230). Unless there is a contract to that effect, an agent can neither enforce personally nor be personally bound by contracts he makes for his principal. The contract is the principal's.

When the agent is presumed personally liable (s. 230). A contract making the agent personally bound is presumed where:

1. he buys or sells goods under a contract made for a merchant who lives abroad (a foreign principal);
2. he does not disclose his principal's name; or
3. his principal, though disclosed, cannot be sued (for example a minor; this may not follow if the third person knew he was dealing for a minor).

Other cases of personal liability.

• Pretended agent (s. 235). A person who falsely claims to be another's authorised agent, and so induces a third person to deal with him, must compensate that person for any loss if the alleged principal does not ratify.
• Breach of warranty of authority. An agent who leads the third person to believe he has authority he lacks is personally liable for that implied warranty.
• Person acting on his own account (s. 236). Someone who contracted as an agent but was really acting for himself cannot demand performance.

The third person's choice (s. 233). Wherever the agent is personally liable, the third person may hold the agent, or the principal, or both liable. But if he induced the agent to act in the belief that only the principal would be held liable, or the principal to act in the belief that only the agent would be, he cannot later hold the other liable (s. 234).

Modes of termination (s. 201). An agency ends:

1. when the principal revokes the agent's authority;
2. when the agent renounces the business of the agency;
3. when the business of the agency is completed;
4. on the death or unsound mind of either the principal or the agent; or
5. when the principal is adjudicated an insolvent under the law for insolvent debtors.

An agency for a fixed term also ends when the term expires.

Irrevocable agency (s. 202). Where the agent himself has an interest in the property that is the subject of the agency, the agency cannot, unless an express contract allows it, be ended to the prejudice of that interest. It survives the principal's revocation, death or insanity. Authority given to a creditor to sell the debtor's land and repay himself out of the price is of this kind.

Partly exercised authority (ss. 203–204). Subject to s. 202, the principal may revoke the authority at any time until the agent has used it in a way that binds the principal. After it has been partly exercised, he cannot revoke it as regards acts and obligations arising from what has already been done.

Revocable and irrevocable agency.

Rules on revocation and renunciation.

• Compensation (s. 205). If the agency was to last for a period, express or implied, the principal must compensate the agent for revoking it early without sufficient cause, and the agent the principal for renouncing early without sufficient cause.
• Notice (s. 206). Reasonable notice of revocation or renunciation must be given; otherwise the resulting damage must be made good.
• Express or implied (s. 207). A principal who rents out his house himself, after appointing an agent to find a tenant, impliedly revokes the agent's authority.
• When it takes effect (s. 208). Termination does not take effect as to the agent until he knows of it, nor as to third persons until they know of it.
• Agent's duty on the principal's death or insanity (s. 209). The agent must take all reasonable steps, for the late principal's representatives, to protect and preserve the interests entrusted to him.
• Sub-agents (s. 210). Their authority ends with the agent's.

The course guideline leaves these out, but DU has asked them, so they are stated in brief.

Duties of an agent.

1. Follow the principal's directions, or, without directions, the custom of that kind of business at that place; otherwise make good any loss and account for any profit (s. 211).
2. Act with reasonable skill and diligence, the skill usual among people in that business unless the principal knew he lacked it, and compensate the principal for the direct consequences of his neglect, want of skill or misconduct, though not for remote loss (s. 212).
3. Render proper accounts on demand (s. 213).
4. Communicate with the principal in cases of difficulty, using reasonable diligence to get instructions (s. 214).
5. Not deal on his own account in the business of the agency without the principal's consent after disclosing all material facts. If he does, the principal may repudiate the deal where facts were dishonestly concealed or the deal was to his disadvantage (s. 215), and may claim any benefit the agent made (s. 216).
6. Pay over sums received for the principal, after his lawful deductions (s. 218).
7. Not delegate, except as s. 190 allows (sub-topic 5).
8. Protect the principal's interests after the principal's death or insanity (s. 209).
9. Make no secret profit beyond his agreed pay, and not use confidential information gained in the agency against the principal.

Rights of an agent.

1. Retainer (s. 217): to keep, out of sums received for the principal, what is due to him for advances, properly incurred expenses and remuneration.
2. Remuneration (s. 219): unless specially agreed, due only on completion of the act; none for the part of the business he misconducted (s. 220).
3. Lien (s. 221): to keep the principal's goods, papers and other property, movable or immovable, received by him, until his commission, disbursements and charges for services on them are paid, unless otherwise agreed.
4. Indemnity for the consequences of lawful acts done in exercise of his authority (s. 222), and of acts done in good faith even if they injure a third person's rights (s. 223); never for a criminal act (s. 224).
5. Compensation for injury caused to him by the principal's neglect or want of skill (s. 225).