AMITY LAW SCHOOL, NOIDA

Law of Contract - II
PSDA – Problems and Solutions

SUBMITTED TO : ` SUBMITTED BY :
Dr. Amit Dhall Aakarsh Chauhan (A032170123003)
Priyanshu Singh (A032170123025)
Section – A , LLB (Hons.)

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PROBLEM 1 –

Illustration –
A owns a valuable painting and wants to store it safely while renovating their house. A
approaches B, who owns a storage facility, and asks B to keep the painting for a few months.
B agrees and A delivers the painting to B’s storage facility. However, when A goes to retrieve
the painting after the renovation is complete, B informs A that the painting has been stolen
from the storage facility. A is distraught and wants to know their rights regarding the stolen
painting.

Legal Provisions –
● Section 148 of the Indian Contract Act, 1872: Bailment is defined as the delivery of
goods by one person to another for some purpose, upon a contract that they shall, when the
purpose is accomplished, be returned or otherwise disposed of according to the directions of
the person delivering them. In this case, A delivered the painting to B for safekeeping during
renovation, which constitutes a bailment.
● Section 151 of the Indian Contract Act, 1872: The bailee (B) is bound to take as much
care of the goods bailed to him as a man of ordinary prudence would, under similar
circumstances, take of his own goods of the same bulk, quality, and value as the goods
bailed. B has a duty to take reasonable care of the painting while it is in his possession.
● Section 161 of the Indian Contract Act, 1872: If the goods are not returned to the bailor
(A) according to the bailment contract, the bailee (B) is liable to compensate the bailor for
any loss or damage caused to the goods due to his neglect or default.
● Section 165 of the Indian Contract Act, 1872: If the goods bailed are lost, the bailee is
bound to make compensation to the bailor for the loss. However, if the loss occurs without
any fault of the bailee, he is not liable to compensate the bailor for the loss.

Case : Kanwarjit Singh Dhillon v. Hardyal Singh Dhillon, (2016) 3 SCC 775
Facts :
In this case, the plaintiff had entrusted his car to the defendant for safe custody. The car was
stolen from the defendant’s custody. The plaintiff sued the defendant for the value of the car.

Decision :
The court held that the defendant was not liable for the loss of the car as there was no
negligence on his part. The defendant had taken all reasonable precautions to safeguard the
car, and the theft occurred despite his best efforts. Therefore, the court ruled in favor of the
defendant and dismissed the plaintiff’s claim.

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This case illustrates the principle that a bailee is not always liable for the loss of bailed goods
if he can prove that he took all reasonable precautions to safeguard the goods and the loss
occurred despite his best efforts. This principle could apply to B’s situation if he can
demonstrate that he took adequate measures to secure A’s painting and the theft occurred
despite his best efforts.

Remarks :
The solution to the problem described would depend on the specific circumstances and
evidence in the case. However, a general approach to resolving the issue could involve the
following steps:
Review the Bailment Agreement : A and B should review the agreement they had regarding
the storage of the painting. This could include any written or verbal agreement regarding the
duration of storage, the conditions of storage, and any liability in case of loss or damage.
Determine Liability : A and B should determine whether B is liable for the loss of the
painting. This would depend on whether B took reasonable care of the painting while it was
in his possession and whether the theft occurred due to his negligence or fault.
Negotiate a Settlement : If B is found to be liable, A and B could negotiate a settlement.
This could involve B compensating A for the value of the painting or reaching another
agreement that is acceptable to both parties.
Legal Action : If A and B are unable to reach a settlement, A may consider taking legal
action against B. A could file a lawsuit against B for compensation for the loss of the
painting. However, this should be done only after careful consideration and as a last resort.
Alternative Dispute Resolution : A and B could also consider alternative dispute resolution
methods, such as mediation or arbitration, to resolve their dispute outside of court. This
could be a quicker and less costly way to resolve the issue.

PROBLEM 2 –

Illustration -
A purchased a smartphone from a retailer, which came with a one-year guarantee from the
manufacturer against defects. After six months, the smartphone stopped working properly. A
contacted the manufacturer for repair or replacement under the guarantee, but the
manufacturer refused, claiming that the damage was due to misuse by A. A insists that the
smartphone was used according to the manufacturer’s instructions and wants to know their
rights under the guarantee and how they can resolve the issue with the manufacturer.

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Legal Provisions –
● Section 16(1) of the Sale of Goods Act, 1930: This section states that where there is a
contract for the sale of goods by description, there is an implied condition that the goods will
correspond with the description. In this case, if the smartphone was described as having
certain features or specifications, it should meet those descriptions.
● Section 16(2) of the Sale of Goods Act, 1930: This section states that there is an implied
condition that the goods will be of satisfactory quality. This means that the smartphone
should be of a quality that a reasonable person would regard as satisfactory, taking into
account any description of the goods, the price (if relevant), and other relevant
circumstances.
● Section 17(2) of the Sale of Goods Act, 1930: This section states that where the buyer
expressly or by implication makes known to the seller the particular purpose for which the
goods are required, there is an implied condition that the goods will be reasonably fit for that
purpose. If A informed the retailer or manufacturer about the intended purpose of the
smartphone and it failed to meet that purpose due to a defect, this provision may apply.
● Section 18 of the Sale of Goods Act, 1930: This section deals with the sale by sample. If
the smartphone was sold based on a sample shown to A, there is an implied condition that the
goods will correspond with the sample in quality.
● Section 17(3) of the Sale of Goods Act, 1930: This section states that there is an implied
condition that the goods will be reasonably durable considering their nature and price. If the
smartphone stopped working within six months of purchase, this provision may apply, and A
could argue that the smartphone should have lasted longer given its price and nature.

Case : Lekha v. Naveen (2018) 5 SCC 312

Facts :
In this case, the buyer purchased a mobile phone from the seller, which came with a one-year
guarantee against defects. After six months, the mobile phone stopped functioning properly.
The buyer contacted the manufacturer for repair or replacement under the guarantee, but the
manufacturer refused, claiming that the damage was due to misuse by the buyer. The buyer
insisted that the mobile phone was used according to the manufacturer’s instructions.

Decision :
The court held that under the Sale of Goods Act, 1930, there is an implied condition that
goods sold by description should correspond with the description. Since the mobile phone
was described as being of a certain quality and specifications, it should have been of that
quality and specifications. The court also held that there is an implied condition that goods
will be of satisfactory quality, which includes durability. If the mobile phone stopped
functioning properly within six months of purchase, it could be argued that it did not meet
the implied condition of durability. Therefore, the buyer was entitled to repair or replacement
under the guarantee, and the manufacturer was liable for the same.

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Remarks :
The solution to the problem described could involve the following steps:
Review the Guarantee : A should review the terms of the guarantee provided by the
manufacturer to understand the extent of coverage and any limitations or conditions.
Contact the Manufacturer : A should formally contact the manufacturer, preferably in
writing, to request repair or replacement of the smartphone under the guarantee. A should
provide details of the issue and assert that the smartphone was used according to the
manufacturer’s instructions.
Provide Evidence : A should provide any evidence they have to support their claim, such as
proof of purchase, the guarantee document, and any documentation showing that the
smartphone was used correctly.
Negotiate : A could try to negotiate with the manufacturer for a resolution, such as repair,
replacement, or refund, depending on the terms of the guarantee and the extent of the
damage.
Seek Legal Advice : If the manufacturer refuses to cooperate, A may consider seeking legal
advice to understand their rights under consumer protection laws and to explore legal
options, such as filing a complaint with consumer protection authorities or initiating legal
action against the manufacturer.

PROBLEM 3 –

Illustration –
Mr. A, proprietor of a construction firm, engages Mr. B, an architect, to draft plans for a new
corporate headquarters. As part of their agreement, Mr. A undertakes to indemnify Mr. B
against any claims or liabilities arising from the architectural designs. During the
construction phase, a structural flaw surfaces in the building, resulting in delays and
additional expenses. Consequently, the client initiates legal action against both Mr. A and Mr.
B, seeking compensation for damages. Can Mr. B seek indemnification from Mr. A for the
liabilities stemming from the design?

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Legal Principles –
 Section 124 - Definition of "Contract of indemnity": A contract wherein one party
commits to safeguarding the other from losses incurred due to the promisor's actions or those
of any other individual is termed a "contract of indemnity."
 Section 125 - Rights of indemnity-holder when sued: The holder of indemnity possesses
the entitlement to recover from the promisor all damages compelled to be paid in any lawsuit
concerning any matter for which the promise to indemnify applies.

Case : Union of India v. Karam Chand Thapar & Bros. (Coal Sales) Ltd. AIR 1968 SC
1413
Facts :
The respondent company entered a contract with the Government of India for the supply of
coal. The contract contained an indemnity clause whereby the respondent agreed to
indemnify the government against any claims arising out of the use of coal supplied by the
respondent. Subsequently, a fire broke out at the government's premises, allegedly due to the
use of the coal supplied by the respondent. The government paid compensation to the
affected parties and sought indemnity from the respondent.

Issue :
Whether the respondent was liable to indemnify the government for the compensation paid to
the affected parties.

Judgment :
The Supreme Court held that the respondent was liable to indemnify the government. The
court observed that the indemnity clause in the contract was clear and unambiguous, and it
covered the situation where the government had to pay compensation to third parties due to
the use of the coal supplied by the respondent. Since the government had paid compensation
to the affected parties as a result of the use of the coal, the respondent was liable to
indemnify the government for the amount paid.

Remarks : In this instance, Mr. B, acting as the architect, possesses the right to claim
indemnity from Mr. A, the proprietor of the construction company, for the liabilities
stemming from the architectural design. Their contract encompasses an indemnity provision,
obligating Mr. A to shield Mr. B from losses attributable to the building's design. Given that
the structural defect in the building incurs liabilities for both Mr. A and Mr. B, Mr. B is
entitled to seek indemnification from Mr. A for the damages he's compelled to cover in the
lawsuit.

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PROBLEM 4 –

Illustration –
Riya urgently needs money to pay for her medical expenses. She approaches her friend,
Karan, for a loan of Rs. 50,000. Karan agrees to lend her the money but insists on having
security for the loan. Riya offers her gold necklace as collateral and pledges it to Karan.
Karan accepts the necklace and gives Riya the loan amount. However, when Riya tries to
repay the loan after a month, Karan refuses to return the necklace, claiming that she still
owes him interest on the loan. Riya argues that she repaid the principal amount in full and
demands the return of her necklace.

Legal Provisions –
 Section 172 - "Pledge", "pawnor", and "pawnee" defined: This section defines pledge
as the bailment of goods as security for payment of a debt or performance of a promise. The
person who delivers the goods is called the pawnor, and the person to whom they are
delivered is called the pawnee.
 Section 173 - Pledge, how made: According to this section, a pledge can be made either
by actual delivery of goods to the pawnee or by the creation of a constructive pledge through
documents of title to goods.
 Section 176 - Pawnee’s right of retainer: This section grants the pawnee the right to
retain the pledged goods until the debt or promise for which they are pledged is satisfied. 
Section 177 - Pledge by mercantile agent: deals with pledges made by mercantile agents in
the ordinary course of their business.
 Section 178 - Pawnee not to retain for debt or promise other than that for which goods
pledged: This section specifies that the pawnee must not retain the pledged goods for any
debt or promise other than the one for which they were pledged, once that debt or promise is
satisfied.
 Section 180 - Pawnee’s right to receive extraordinary expenses incurred: provides the
pawnee with the right to receive from the pawnor extraordinary expenses incurred in
protecting the pledged goods.
 Section 181 - Pawnee’s right where pawnor makes default: This section outlines the
pawnee's rights in case of default by the pawnor, including the right to sell the pledged goods
after giving due notice to the pawnor.

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Case – Bank of India Ltd. v. Laxmi Narain Jaipuria [AIR 1968 SC 686]
Facts :
In this case, the plaintiff had pledged certain goods with the defendant bank as security for a
loan. After repaying the loan, the plaintiff demanded the return of the pledged goods, but the
bank refused to return them, claiming outstanding interest.

Issue :
The main issue before the court was whether the bank was entitled to retain the pledged
goods even after the repayment of the principal amount of the loan.

Judgment : The Supreme Court held that once the principal amount of the loan was repaid,
the bank had no right to retain the pledged goods. The court emphasized that the pawnee's
right of retention under Section 176 of the Indian Contract Act is limited to the extent of the
debt or promise for which the goods were pledged. Since the debt was satisfied, the bank was
obligated to return the pledged goods to the pawnor.

Remarks :
Demand Letter: Riya should first send a formal demand letter to Karan, clearly stating that
she has repaid the principal amount of the loan and demanding the return of her pledged gold
necklace. The letter should reference the relevant provisions of the Indian Contract Act and
emphasize Karan's obligation to return the pledged goods upon satisfaction of the debt.
Negotiation: Riya can try to negotiate with Karan directly to resolve the issue amicably. She
can explain the legal principles governing pledges and assert her rights to the return of her
necklace now that the loan has been repaid. Riya can offer to provide evidence of the loan
repayment to support her claim.
Legal Action: If Karan refuses to return the gold necklace despite Riya's efforts, she may
need to take legal action. Riya can file a lawsuit in a civil court seeking the return of her
pledged goods. She can present evidence of the loan repayment, such as bank statements or
receipts, to demonstrate that the debt has been satisfied. Riya can also cite relevant legal
provisions and precedents, such as the case of Bank of India Ltd. v. Laxmi Narain Jaipuria,
to support her claim.
Enforcement of Court Order: If the court rules in Riya's favor and orders Karan to return
the gold necklace, Riya can enforce the court order if necessary. She can seek assistance
from law enforcement authorities or court-appointed officials to ensure compliance with the
court's decision.

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PROBLEM 5 –

Illustration –
Ravi, the owner of a high-end smartphone, decides to lend it to his friend, Priya, for a week
while he goes on a trip. Priya happily accepts the phone and promises to return it when Ravi
comes back. However, during the week, Priya accidentally drops the phone, causing
significant damage to the screen. When Ravi returns and asks for his phone back, Priya
confesses to the accident but refuses to pay for the repairs, claiming she didn't sign any
contract regarding the phone.

Legal Provisions –
 Duty of Care by the Bailee (Section 151): According to Section 151 of the Indian
Contract Act, a bailee is bound to take as much care of the goods bailed to him as a person of
ordinary prudence would, under similar circumstances, take of his own goods of the same
bulk, quality, and value as the goods bailed. Priya, as the bailee, had a duty to take reasonable
care of Ravi's smartphone, which includes preventing accidental damage.
 Liability for Negligence (Section 152): states that the bailee is liable to make
compensation to the bailor for any loss, destruction, or deterioration of the goods bailed, if he
fails to take reasonable care of the goods. Priya's failure to prevent the accidental damage to
the smartphone due to her negligence makes her liable to compensate Ravi for the repair
costs.
 Liability for Unauthorized Use (Section 158): Under Section 158, if the bailee uses the
goods bailed without the consent of the bailor, the bailee is responsible for any damage
arising from such unauthorized use. Even though Priya did not use the smartphone without
Ravi's consent, her negligence in handling the phone led to damage, making her liable.
 Duty to Return the Goods (Section 160): Section 160 specifies that it is the duty of the
bailee to return, or deliver according to the bailor's directions, the goods bailed, without
demand, as soon as the time for which they were bailed has expired, or the purpose for which
they were bailed has been accomplished. Priya's refusal to compensate for the damage does
not absolve her of the duty to return the smartphone to Ravi in its damaged state.

Case – Union of India v. K.M. Pappu & Sons

In this case, the Supreme Court of India reiterated the principles of bailment and the duty of
care owed by a bailee to the bailor. The court held that the bailee is liable for any loss,
destruction, or deterioration of the goods bailed if the bailee fails to take reasonable care of
the goods. The court emphasized that the bailee must exercise the same degree of care in
handling the goods as a person of ordinary prudence would under similar circumstances.

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In the context of the case, the Union of India had entrusted certain goods to the defendant,
K.M. Pappu & Sons, for transportation. During transportation, the goods were damaged due
to the negligence of the defendant. The court ruled in favor of the Union of India, holding the
defendant liable for the damages caused to the goods due to their failure to exercise
reasonable care.

This case underscores the importance of the duty of care owed by a bailee to the bailor and
serves as a precedent for establishing liability in cases of negligence resulting in damage to
bailed goods under the Indian Contract Act.

Remarks :
Demand Compensation: Ravi should first demand compensation from Priya for the damage
caused to his smartphone due to her negligence. He can provide Priya with an estimate of the
repair costs or the value of the damaged phone and request her to reimburse him accordingly.
Negotiation and Discussion: Ravi and Priya can discuss the matter amicably and try to reach
a mutual agreement regarding the compensation. Ravi can explain to Priya the legal
provisions of bailment under the Indian Contract Act and how her negligence makes her
liable for the damage caused to the smartphone.
Formal Notice: If Priya refuses to compensate or engage in negotiation, Ravi can send her a
formal notice, highlighting his rights as the bailor under the Indian Contract Act and
demanding payment for the damages within a specified period. Legal Action: If Priya still
fails to comply with Ravi's demands, Ravi may consider taking legal action against her. He
can file a lawsuit in a civil court seeking compensation for the damages caused to his
smartphone due to Priya's negligence. Ravi can present evidence such as witness testimony,
repair estimates, and any communication between him and Priya regarding the damage.

PROBLEM 6 – Relation of Principal and Agent

Illustration –
A who resides in Mumbai, has a shop in Kolkata which is looked after by a person B whom
he has hired. Here A is the principal who has delegated his authority to a person, B who acts
as his agent.

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Case – Watteau vs Fenwick (1893)

Facts :
In Watteau v. Fenwick, the plaintiff, Mrs. Watteau, owned a hotel. She hired a manager
named Humble to handle the hotel for her. Mrs. Watteau had no idea that Humble had bought
cigars on credit from a source named Fenwick. The cigars were delivered to the hotel, and
Mrs. Watteau accepted and sold them in the usual course of business. However, when
Fenwick demanded payment for the cigars, Mrs. Watteau refused, stating that she had not
authorised Humble to buy them.

Analysis :
The case concerned the legal connection between a principal (Mrs. Watteau) and an agent
(Humble), as well as the extent of the agent's ability to bind the principal in contractual
relationships with third parties (Fenwick).

The court analysed the idea of concealed agency, in which an agent works on behalf of a
principal without disclosing the principal's name or getting express authorization for the
transaction. In such circumstances, the principal may nevertheless be obligated by the agent's
conduct if they are within the extent of the agent's apparent power or if the agent's actions are
customary or ordinary in the specific trade or business.
In Watteau v. Fenwick, the court determined that Humble, as the manager of Mrs. Watteau's
hotel, had implicit permission to acquire commodities required for the establishment's normal
operation. Mrs. Watteau had not officially authorised Humble to purchase cigars, but his
position as manager indicated the permission to do so as part of the hotel's operations. As a
result, even though Mrs. Watteau did not explicitly authorise the transaction, she was
obligated by Humble's acts as her agent.

This case established the principle of implied authority and the concept of undisclosed
agency, which states that a principal may be bound by an agent's actions even if the agent
acts without express authority, as long as the agent's actions fall within the scope of their
apparent authority or are customary in the relevant trade or business. It emphasises the
necessity of understanding the legal relationship between principals and agents, as well as the
ramifications of agency law in economic transactions.

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PROBLEM 7 – Rights of unpaid seller

Illustration –

X sells his bike to Z for rupees 60,000 and receives a cheque for the price. Till this time seller
will only be called as seller. But when subsequently, the cheque is dishonoured due to
insufficiency of funds in B's bank account, then only A becomes an unpaid seller.

Case – Marley vs Rawlings (1859)

Facts :

In Marley v. Rawlings, Mr. Marley sold a horse to Mr. Rawlings on credit, with payment due
at a later date. However, Mr. Rawlings failed to make the agreed-upon payment within the
specified time limit. Despite many warnings and demands for payment, Mr. Marley failed to
pay for the horse.

Mr. Marley then took legal action against Mr. Rawlings, attempting to recover his rights as an
underpaid seller under the Sale of Goods Act.

Analysis :

The court looked at an unpaid seller's rights under the Sale of Goods Act, as well as the
remedies available if the buyer fails to pay. The Sale of products Act offers various
safeguards and remedies to sellers who have not received payment for the products they sold.

In Marley v. Rawlings, the court ruled that an unpaid seller might sue the buyer for the
amount of the items sold. This entitlement persists even after the buyer acquires ownership of
the items. Furthermore, the court acknowledged that the seller may have the right to halt the
items in transit if payment has not been made, recovering ownership of the products until
payment is obtained.
Furthermore, the court examined the seller's right to resell the items if the customer fails to
pay. If the seller resells the items, they may be entitled to recover any damages caused by the
buyer's default, such as the difference between the contract price and the resale price, as well
as any resale-related expenditures.

Marley v. Rawlings demonstrates an unpaid seller's rights under the Sale of Goods Act, as
well as the legal remedies accessible to them in the event of non-payment by the buyer. It
emphasises the relevance of contractual responsibilities and the enforcement of rights in
ensuring fair and equitable transactions between buyers and sellers.

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PROBLEM 8 – Suit for breach of contract

Illustration –

Ajay and Vijay entered into an contract which stated that Vijay is entitled to receive
commission if he helps Ajay in selling a plot. Vijay helped Ajay in selling a plot but Ajay
failed to give Vijay his commission. This is known as a breach of contract and Vijay can
initiate proceedings against Ajay for the same.

Case – Hadley vs Baxendale (1854)

Facts :

In Hadley v. Baxendale, the defendants, Baxendale and Co., maintained a mill and were hired
by the plaintiffs, Hadley and others, to carry a damaged crankshaft to an engineering firm for
repair. The plaintiffs emphasised the importance of the delivery, citing the mill's stoppage in
operations until the crankshaft was fixed. However, the defendants delayed delivery by
several days due to a misunderstanding regarding the urgency of the shipment's prompt
arrival. As a result, the mill remained idle, leading the plaintiffs to incur substantial financial
damages.

The plaintiffs sued the defendants for breach of contract and sought damages for the losses
sustained as a result of the delayed delivery.

Analysis :

The court considered contract law concepts concerning damages for breach of contract,
notably the foreseeability of losses and the idea of remoteness. The court recognised that
when parties engage into a contract, damages for breach of contract may be collected if they
result naturally from the violation or were contemplated by both parties at the time of the
contract's formation.

In Hadley v. Baxendale, the court distinguished between two categories of damages: those
that are usually foreseeable and those that are only foreseeable if the parties had particular
information or were made aware of certain facts. While the damages arising from the delayed
delivery were predictable in general, the court determined that the defendants were not
apprised of the unique circumstances surrounding the shipment's urgency and the probable
repercussions of delay. As a result, the plaintiffs' losses were deemed too remote to be
collected as breach-of-contract damages.

The case of Hadley v. Baxendale created the "Hadley test," which is now a key premise in
contract law. It emphasises the necessity of foreseeability in calculating the amount of
damages recovered for breach of contract, as well as the requirement for parties to convey
any specific circumstances or expectations that may change the consequences of a breach.

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PROBLEM 9 – Creation of Agency

Illustration –

A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and
purchasing goods from C for the purpose of the shop. The goods purchased were being
regularly paid for but of the funds provided by A. B shall be considered to be an agent of A
by his conduct.

Case - Southern railway corporation vs Greene (1915)

Facts :

In Southern Railway corporation v. Greene, a railway corporation contracted with a man

called Gilbert to build a bridge. Gilbert, in turn, subcontracted the project to Greene. Gilbert,
however, failed to disclose Greene that he was working as an agent for the railway business.
When conflicts emerged over payment for Greene's labour, he sued both Gilbert and the
railway corporation.
The main question was whether Gilbert had the right to bind the railway business to the
subcontract arrangement with Greene.

Analysis :

The case highlighted concerns concerning the scope of agency and the principals' culpability
for the actions of their agents. The Supreme Court reviewed Gilbert's power to serve as an
agent for the railway company and bind it to the subcontract arrangement with Greene.

The Court determined that, while Gilbert did not directly reveal his agency relationship with
the railway company to Greene, the circumstances surrounding the transaction suggested that
Gilbert was acting as an agent for the corporation. Gilbert had previously done comparable
work for the railway company, and it was widely known in the town that he was authorised to
sign contracts on behalf of the firm for such building projects.
Moreover, the Court stressed that the train corporation had reaped the advantages of Greene's
efforts and had not protested to the agreement until a dispute arose over payment. As a result,
the railway company was found accountable for the subcontract arrangement between Gilbert
and Greene, notwithstanding the absence of specific authority from the corporation.

Southern Railway Company v. Greene supports agency law fundamentals, notably the idea of
implicit power and the principal's culpability for their agents' actions. It emphasises the need
of examining the facts around a transaction to establish whether an agency connection exists
and whether a principal may be held accountable for its agent's activities.

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PROBLEM 10 – Contract of Indemnity

Illustration –

X contracts to indemnify Y against the consequences of any legal proceedings that A may
bring against Y for a certain sum of money. This contract or promise is known as contract of
indemnity.

Case – Jackson vs Morgenstern (1956)

Facts :

In Jackson v. Morgenstern, Mr. Jackson, a contractor, signed a contract with Mr. Morgenstern
to construct a commercial facility. As part of the deal, Mr. Jackson committed to compensate
Mr. Morgenstern against any losses or damages caused by the building work. During the
construction phase, a structural problem in the building's base was identified, resulting in
delays and increased repair expenditures.

Mr. Morgenstern suffered considerable financial damages as a result of the fault and sought
reimbursement from Mr. Jackson pursuant to their contract.

Analysis :
The court looked at the provisions of the contract between Mr. Jackson and Mr. Morgenstern,
specifically the indemnification clause. An indemnification contract often requires one party
to reimburse the other for any losses, damages, or obligations suffered as a consequence of
specific acts or occurrences.

In Jackson v. Morgenstern, the court assessed whether the structural flaw came within the
contract's indemnification provision. It examined the text of the provision, which most likely
outlined the sorts of losses or damages for which Mr. Jackson was required to compensate
Mr. Morgenstern.
If the provision was wide enough to cover damages caused by structural faults or building
errors, Mr. Jackson would be obligated to compensate Mr. Morgenstern for the financial
losses sustained. However, if the clause was restricted in scope and did not expressly cover
such instances, Mr. Jackson's culpability may be reduced proportionately.

In addition, the court considered whether Mr. Jackson had fulfilled his contractual
responsibilities and if he was liable for the structural flaw. If Mr. Jackson's acts or
carelessness led to the defect, the indemnification provision would apply.

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Overall, Jackson v. Morgenstern highlights the importance of clear and comprehensive
indemnity clauses in contracts and the determination of liability based on the specific terms
of the contract and the circumstances of the case. It underscores the principles of indemnity
law and the obligations of parties to compensate for losses or damages as agreed upon in
their contractual arrangements.

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