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Section A

1. According to section 2(e) of the Indian Contract Act of 1872, every promise and every set
of promises, forming the consideration for each other, is an agreement.

Section 2(h) of the same act, defines a contract as an agreement enforceable by law.

Thus both an agreement and a contract have their basis or creation out of a promise or set of
promises made between two (or more) parties.

The difference that demarcates a contract from a mere agreement is the aspect of enforceability.
Thus if an agreement is made, by following the right criteria and including all the requisites, such
that any or every promise contained therein can be enforced by law or can have legal
repercussion it attains the qualification of being a contract – but it is still an agreement, only with
an aspect of enforceability. Thus it can be seen that every contract is an agreement.

It must be pointed out that not all agreements are enforceable. This might be because of the
nature of the agreement. For example agreements borne out of friendship like promise to go
drinking together can not require enforceability and therefore cannot be a contract. An agreement
can also fail to be considered as a contract due to omission on the part of the entrants, or due to
illegality or any other lacking for recognition by law as a contract but it would be an agreement.
Thus every contract is an agreement but not every agreement is a contract.

2. A contract of indemnity is a contract whereby one party, called the indemnifier, promises
to save the other, called the indemnified or indemnity holder, from loss caused to him by
the conduct of the indemnifier himself or by the conduct of any other person.

The following are the rights of an indemnity holder:

• The right to recover from the indemnifier all damages which he may be compelled to pay
in any suit in respect of any matter to which the contract of indemnity applies.

• The right to recover from the indemnifier all costs of suit which he may have to pay to
such third party, provided in bringing or defending the suit he acted under the authority of
the indemnifier, or he did not act in contravention of the orders of the indemnifier and in
such a way as a prudent man would act in his own case.

• The right to recover from the indemnifier all sums which he may have paid under the
terms of any compromise of any such suit, if the compromise was not contrary to the
orders of the indemnifier, and was one which it would have been prudent for the
promisee to make.

Contrasted from the above definition of contract of indemnity, a contract of guarantee is the one
in which a party agrees to perform the promise or discharge the liability of a third party in case
of his default. It can be seen here that in a contract of indemnity, there is only one contract, made
between two parties i.e. the indemnifier and the indemnity holder. In a contact of guarantee
however, there are in effect, be two contracts, a primary contract between the principal debtor
and the creditor, and a secondary contract between the creditor and the surety. Thus in a contract
of guarantee there are three parties, namely: the principal debtor, the creditor and the surety.

The liability of a promisor is primary and independent in a contract of indemnity, whereas in a

contract of guarantee, the liability of the surety is secondary, the primary liability being that of
the principal debtor.

In the case of guarantee, there is an existing debt or obligation, the performance of which is
guaranteed by the surety. In contract of indemnity the happening of any loss is a contingency
(may happen or not) against which the indemnifier undertakes to indemnify.

In a contract of guarantee, after discharging the debt, the surety is entitled to proceed against the
principal debtor in his own name, while in a contract of indemnity, the indemnifier cannot
proceed against third parties in his own name, unless there is an assignment in his favor to do so.


This rule which literally translates as “you can’t give what you don’t have” in the context of
transfer of property to buyer applies to the case where an unauthorized non-owner of goods sells
them to a buyer.

The rule implies that if the seller does not own the goods he does not have the mandate to pass
property to buyer. The property/title of the goods will still remain with the original/true owner
since the seller here can not pass the ownership/title since he did not have it.


However a non-owner can pass title of the goods to seller under the following circumstances:

o where he sells the goods with the authority and consent of the true owner.

o where the true owner is prevented by his conduct from denying the seller's
authority to sell (principle of estoppel).

o where a mercantile agent who has no authority to sell is in possession of the

goods or documents of title to the goods with the consent of the owner, sells the
goods while acting in the ordinary course of business of a mercantile agent and
the buyer acts in good faith and does not know that the agent has no authority to
sell at the time of sale.

o sale by one of the joint owners if he has the sole possession of them by permission
of the co-owners if buyer buys in good faith and has not at the time of the contract
of sale notice that the seller has no authority to sell the goods.

o where sale is by person in possession under a voidable contract but the contract
has not yet been rescinded, if the buyer buys the goods in good faith and without
notice of the seller’s defect of title.

o where the sale is by seller in possession after sale provided the new buyer
receives the goods in good faith and without notice of the previous sale.

o where sale is by buyer in possession of the goods or the documents of title to the
goods with approval of the owner after having bought or agreed to buy goods
provided the buyer buys in good faith and without notice of any lien or other right
of the original seller in respect of the goods.

o where sale is by an unpaid seller who has exercised his right of lien or stoppage in

4. Under the Sale of Goods Act of 1930, an unpaid seller is a seller in a contract of sale of goods
to whom the whole of the price has not been paid or tendered; or when he has received a bill
of exchange or any other negotiable instrument as conditional payment, the condition on
which it was received has not been fulfilled due to the dishonor of the instrument or

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