INTRODUCTION:-
You may ask the question why in some cases innocent man is made answerable for the for the wrongful act done by another person. This may seem as objectionable and immoral if you are not aware about the famous doctrine, ‘vicarious liability’. The doctrine of ‘vicarious liability’ which is also known as ‘liability for the acts of others’, has been regarded as controversial over time and a great issue of liability in common law practice. This term was coined by the English jurist Frederick Pollock in the 19th century. Since that time, it goes under many development & the modern rule of vicarious liability can be stated as “ A master is liable for any tort which the servant commits in the course of employment.” This doctrine plays an important role in defining liability in tort, performance of contract, some other civil cases. It is one of the important topics covered under the law of torts.
CONCEPT OF “ VICARIOUS LIABILITY”:
As a general rule, a man is liable for only for hi own acts but there are certain circumstances in which a person becomes liable for the act done by others. This is called as ‘Vicarious Liability’ i.e. liability incurred by anothers. The most common example for the wrong committed by his servants. In these cases, the liability is joint and also several. The plaintiff can sue the actual wrong doer himself (he be a servant or agent) and his principal.
In the words of Salmond, in general persona is responsible only for his own acts, but there are exceptional cases in which the law imposes on him vicarious responsibility for the acts of other( however he himself is innocent). “a word, a gesture or a tone from the master will be sufficient to induce a servant to commit greatest wrongs.”
MAXIMS:
This concept of ‘Vicarious Liability’ is based on two general principles: Qui facit per alium facit per se & Respondent Superior as given below.
Qui facit per alium facit per se:
This is a Latin maxim means ‘He who acts through another is deemed as doing it himself.’ The master’s responsibility for the servant’s act had also its origin in this principle. The maxim, qui facit per alium facit per se, states the essential principle of the ‘law of agency’, i.e. A principal who appoints or authorizes an agent to act for him will be bound by the acts of the agent in the performance of his authority. Similar doctrine can be found in the principle in the ‘Chanakya Niti’, “राजा राष्ट्रकृतं पापं राज्ञः पापं पुरोहित:”. It means that the King is liable for wrongs committed by his subjects and the minister, or the priest is liable for the wrongs committed by the King. The reason is that a person who puts another in his place to do a class of acts in his absence necessarily leaves him to determine, when an act of that is to be done and trust him the way it is done. Hence, he is responsible for the wrong of the person so entrusted.
Respondent Superior:
A “Respondent superior” is a Latin term that means “let the master answer.” In legal contexts, it is a principle of vicarious liability that holds an employer or principal responsible for the actions of their employees or agents that are performed within the scope of their employment or agency. This maxim has its origin in legal presumptions that all acts done by the servant are done by his master’s express or implied consent and are in fact the act of master. This principle held master liable for the act of his servant.
These two maxims i.e. Qui facit per alium facit per se & Respondent Superior play important role in shaping the principal of vicarious liability. These are the founding reasoning behind the Vicarious Liability.
WHEN IT ARISES ?
Vicarious liability arises from 3 main virtue where two person shares a certain relation among themselves as given below. Vicarious liability may arises from 3 main virtue where two person shares a certain relation among themselves where one person is responsible for the actions of another as given below.
By virtue of Abatement:
By virtue of Ratification:
By virtue of Relationship:
By virtue of Abatement:
Vicarious liability by virtue of abatement may arise to a person who abetted another person to do an act. As he is also responsible for the result of that act, that’s why a person who abetted a tortious act is also liable for the act under Vicarious liability.
By virtue of Ratification:
According to the section 196 of Indian contract Act,1862 When acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratify them, the same effects will follow as if they had been performed by his authority.
Vicarious liability is arisen from the ratification or Authorization. A person might have done an act not with an intention of doing it for him but for an another person, without his prior authority. A person who ratified act, will be bound by the act, from the date of act committed not from date of ratification. Whether it is advantageous or detrimental. Essentials for the vicarious liability by virtue of ratification is as given below. They applies to the principle-agent relation created under the Agency.
ESSENTIALS:
Act is done with the intention of binding the principal.
(NOTE – Act done on personal account can not be ratified)
Person ratifying it with Full knowledge of tortious character & risk involved in it.
Any void & illegal act can not be ratified.
Must take place at a time when a ratifying party must himself have lawfully done that act.
By virtue of Relationship:
Vicarious liability may also arise, where the doer of the act and the person who appointed him to do that act share some relationship, where one person is acting on the behalf of another & for his beneficial. These relations may be the relations given below.
Master & servant
Owner & independent Contractor
Principle & agent
Company & its directors
Guardians & wards
Firms & Partners
Liability of state
All these relations are included under Vicarious Liability but in this assignment, I am dealing with only two relations out of these. i.e. Vicarious liability in Partnership and Agency under the provisions of Indian contract Act, 1872 and Indian partnership Act, 1932.
CONCEPT OF “FIRMS & PARTNERS”:
When two people carried out a business together and share a profit of the business carried out by them, they are said to be Partners in that business. These partners are collectively known as a ‘firm’. According to the section 4 of Indian Partnership act, 1932 "Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. This Partnership relation is also included under the vicarious liability as they share same rights & liabilities to each other.
In order to determine whether a group of persons is in a firm or is not a firm, or whether a person is or is not a partner in a firm, they must share a real relation between the parties, as shown by all relevant facts taken together & satisfy the conditions given under the Indian Partnership Act,1932.
VICARIOUS LIABILITY IN FIRMS & PARTNERS:
The partners are the agent of the firm for the purpose of the business of the firm and every other partner is also liable for the performance of business deal done by any partner as a representative interest of that Firm. Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner as per the section 25 of Indian Partnership Act,1932. The partners have an implied authority to bind the firm. As per the section 19 of Indian Partnership Act, 1932 The act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. But in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to -
Dispute relating to the business of the firm to arbitration,
open a banking account on behalf of the firm,
withdraw a suit or proceeding filed on behalf of the firm,
admit any liability in a suit or proceeding against the firm,
acquire or transfer immovable property on behalf of the firm,
enter into partnership on behalf of the firm.
Following are some sections given under the Indian Partnership Act,1932 where partner or firm is made liable for the act done by any other partner. i.e. the vicarious liability in partnership and firm.
Section 26: as per the section Partner is also liable for the wrongful act done by any other partner as a acting to a agent to a firm in the ordinary course of the business or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner is also liable.
Section 27: as per the section, firm is liable for the loss caused to third party by any partner’s misapplication of money received from it.
Section 28: as per the section, any partner who represents himself, to be a partner in a firm, is liable as a partner in that firm to that person who has on the faith in that representation.
In above sections, provision relating to the partner who is major and of sound mind are given, but in Partnership, there are also provisions relating to the minor as a partner. Minors are also able to be a partner in firm. Now, the catch here is minor can take the profit from the firm but he is not liable as other partners. We’ll see these provisions as given below under section 30 of Indian Partnership Act,1932:
Minor may not be a partner in a firm, but, with the consent of all the partners, he may be admitted to the benefits of partnership.
Such minor has a right to such share of the property & its profits.
Such minor’s share is liable for the acts of the firm, but the minor is not personally liable for any such act.
Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm.
Where such person becomes a partner, he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership, and
Where such person elects not become a partner,
his rights and liabilities shall continue as a minor under this section up to the particular date,
his share shall not be liable for any acts of the firm after particular date.
Now, all this sections we studied is about the civil liability of Partners & firms, but Partners are also held liable for the criminal liability of any partner acting on the behalf of firm. This criminal liability has been dealt under the section 141 of Negotiable Instrument act,1881. This section deals with offenses by companies and firms, extending criminal liability to individuals associated with the firm if they are in charge of the business or if the offence was committed with their consent or negligence.
In the case of Dilip Hariramani v. Bank of Baroda (2022 INSC 538) landmark judgement was delivered by the Supreme Court of India on May 9, 2022.SC has provided significant clarity on the scope of vicarious criminal liability of partners under Section 141 of the NI Act, 1881. In this case, bank of baroda had provided loans to the partnership firm M/s Global Packaging. Cheque issued by a firm, signed by a one of the partners of firm were dishonored. The bank filed a complaint filed under NI act,1881 against both partners including the Dilip Hariramani. When this case reached to the SC, the subsequent legal debates was started on a question whether a partner can be held criminally liable for the firm's actions without being directly involved in the misconduct.
Supreme Court in above case, gives a ruling that partner can’t be convicted under NI act just for being a partner to a firm except aggrieved party proves that he is responsible for firm business or the offence occurred with his knowledge or negligence.
To summarize the provisions related to vicarious liability in partners & firm, partner is a agent of firm & responsible for firms business. Firm has a civil liability for partner’s act under partnership act & a criminal liability under NI act.
CONCEPT OF AGENCY:
Agency law is a branch of common law that deals with the relationship between a principal and an agent. The law defines the terms of the relationship and outlines the rights, duties, and obligations of both parties. The section 182 of Indian Contract Act,1872 defines the terms “Agent” and “Principal” as follows:
An “Agent” is a person employed to do an act for another or to represent another in dealing with third person. The person for whom such act is done, or who is so represented, is called the “Principal”.
In Agency one person (Principal) employs another person (Agent) to represent him or to act on his behalf, in dealing with a third person. The act of the agent binds the principal in the same way he would be bound if he does that act himself. The agent may expressly or impliedly give he’s consented to do an act or to not to do an act on the behalf of his principal. In such cases principal is bound to perform the terms agreed by agent with third parties. Agent is just a connecting link between the principal & the third party. An agent is an individual or a company that has been authorized by a principal to act on their behalf. The agent may be given broad or limited authority, depending on the terms of the agency relationship.
Agency is well-settled, legal concept which is employed by the court when it becomes necessary to explain and resolve the problems related to principal and agent in contract.
Characteristics of Agency:
Any person with sound mind, may employ an agent and also, any person with sound mind & age of majority can be an agent.
No consideration is necessary to create an agency.
The authority of an agent may be expressed or implied. It is express when it is given by words spoken or written & it is implied when it is to be inferred from the circumstances of the case.
An agent has authority to do every lawful thing which is necessary in order to do such act.
VICARIOUS LIABILITY IN AGENCY:
Agency includes Principal & Agent relationship which is one of the important relations covered under the Vicarious Liability by virtue of Relationship. As we already discussed Vicarious Liability & Concept of Agency in this Article, now we’ll see the liability of Principal under Agency relation. When the principal expressly or impliedly authorizes some act to be done he is made liable for such an act of the agent, on the grounds that it is the principal who has selected the agent. That’s where Vicarious Liability comes into Picture. In some cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them, liable.
According to the Section 226 of Indian Contract Act,1872 when agent enter contract with third party as on of representative interest of his principal creating contractual relation. for such act of agent, principal is directly bound to a third party in the same manner it is done by himself. Because the agent is acting for the benefit of a master, hence it becomes duty of the principal to take the responsibility of the act done by his agent.
The question of principal’s liability arises in the following cases,
When agent exceeds authority.
When agent receives notice on principal's behalf, or
When agent commits fraud, etc. against third party.
The section 227 of Indian Contract Act,1872 answers the above question i.e. When an agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal. Also, principle is liable under section 237, when agent, without authority, has done any acts or incurred obligation to third person on principal’s behalf & later principal induce the third person to believe that act done by agent is within scope of agent’s authority.
Personal liability of agent:
Now let’s see the personal liability of agent. Generally principal is liable for the act done by its servant & agent is not personally liable. But in some cases when special performance of contract is involved, agent is also liable. Under section 230, which talks about agent cannot personally enforce, nor be bound by, contracts on behalf of principal. Following are some circumstances when agent is personally liable:
When agent acts without authority and create misconception about authority.
When contract itself expressly provides the personal liability of the agent.
Where the agent works for the foreign principal.
When a govt. servant entered into contract on behalf of Union of India.
When agent do an illegal act.
The landmark case of Llyod Pauper v. Grace Smith & co. (1912) in a tort law dealt before house of lords, established the vicarious liability of principal to the actions committed by agent within scope of employment. The plaintiff, Mrs Lloyd, owned some cottages and went to a law firm, Grace & co., for legal advice on selling them. A managing clerk, acting as an agent of the firm, fraudulently convinced her to sign a gift deed instead of a sale deed, thereby transferring ownership of the cottages to himself. Later, the clerk misappropriated the property, causing Mrs. Llyod financial loss. The issue before the house of lord is whether a firm is liable for the fraudulent actions of a clerk, even through they are unaware about the fraud ?
The house of Lords held that the law firm is liable for the fraudulent actions of the clerk. The reason behind that the clerk is acting within the scope of his employment as an agent of the firm.
ANALYSIS & CONCLUSION:
To conclude everything stated in this assignment, the principle of vicarious liability is the liability arises to the master from the negligent or wrongful act done by the servant, employee, agent or partner in his course of employment, who is acting on a apparent authority on the behalf of his master, principle, firm. This is both morally and legally correct as agent is acting for the benefit of his principal, so its become duty of the principal to take the responsibility for the act done his agent. This Principle of vicarious liability is based on two Latin maxims i.e. Qui facit per allium facit per se & Respondent Superior, which held master responsible for his servant’s action. Then we read about the categorization of vicarious liability based on three virtues i.e. abatement, Authorization/rectification, relationship.
Vicarious liability is also arose in partnership and agency which is covered in this assignment. In partnership the partner is a agent to the firm & every other partner is liable as being a part of firm with some exceptions. Also minor can be a beneficiary to the firm but can’t be a partner. He owns some rights but free from the liabilities. and in agency, principle is liable for the act done by his agent. But in some cases, agent is also personally liable to the third party.
About Author :-
Mr. Patil Chandrahas Nandkumar