Contract Act-Specific Contracts

By Prof. Neha Patel

(c) Prof. Neha Patel, GLS Management Programs

Contracts of Indemnity & Guarantee

Chapter VIII (sec. 124- 147) of Indian Contract

Act 1872 covers these provisions A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or
by the conduct of any other person, is called a contract of

indemnity. (sec 124) Promisor >> indemnifier & Promisee >> indemnity holder

Rights of indemnity holder when sued (sec 125)

(all damages/all expenses-costs/all sums) Rights of indemnifier (the act is silent)

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Guarantee (Section 126)

A contract of guarantee is a contract to perform

the promise or
Discharge the liability of a third person in case of his

default.
The person who gives surety

Who defaults principal debtor

To whom it is given creditor It may be oral or written; express or implied

Essential features
Concurrence/Primary & Secondary liability
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Essentials of a Valid Contract (in case of principal

debtor being a minor, the surety is regarded as

Guarantee- Features
Nature of suretys liability (coextensive/limitation)

Kinds of guarantee (specific / continuing)

Revocation of Continuing Guarantee

(notice/death etc.) Discharge of Surety (suretys liability ends) (revocation/creditors conduct/invalidation)

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Contract of Indemnity vs. Contract of Guarantee

COI
Two parties Liability Primary Only 1 contract Indemnifier not to act

COG
Three parties Liability secondary Total 3 contracts Surety to give

on the request of Indemnified Liability arises only in case of Contingency

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guarantee upon debtors request Debt/duty already exists the performance of which has been guaranteed

Bailment
Delivery of goods by 1 person to another

For some purpose

Upon contract that
When purpose is accomplished Be returned or otherwise disposed of According to the directions of the person delivering them

Person delivering the goods is called Bailor Person to whom goods are delivered is called

Bailee

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Essential Features of Bailment

Delivery of Moveable goods

Goods delivered for some purpose

Return of Specific goods
Must be returned to bailor or disposed off As per the directions of the Bailor After fulfillment of the purpose or After expiry of bailment period

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Kinds of Bailment
Classified on the basis of Benefit or Reward Gratuitous
No remuneration to any of the parties For exclusive benefit of Bailor or Bailee Example

Loan of book to a friend Deposit of goods for safe custody

Non-Gratuitous
Goods given for reward- Remuneration or Consideration Example

Car Let out on Hire Tailoring for charges

Pawn or Pledge
Delivered as security for money borrowed
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Bailment, Sale & License

Sale
Ownership is Transferred

License
One party is permitted to place goods in premises

belonging to other person Goods are not delivered to the Licenser

Bailment
Ownership is not Transferred

Goods are delivered to the Bailee

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Duties of Bailee
To take reasonable care of goods delivered to

him Not to make unauthorized use of goods Not to mix bailed goods with own goods To return the goods To return accretions/increase to goods Not to set up any adverse title

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Duties of Bailor
Disclose Faults/ Defects in goods

Repay necessary expenses in case of gratuitous

bail Repay extra-ordinary expenses in Non-Gratuitous bail Indemnify bailee Receive Back the goods

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Rights of Bailee
Enforcement of bailors duties

Deliver goods to one of the several joint Bailors

Deliver goods in good faith to bailor without title Lien
Particular Lien unless otherwise stated

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Rights of Bailor
Enforcement of Bailees duties

Terminate bailment if goods used wrongly

Demand return of goods at any time in case of

Gratuitous bailment

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Pledge or Pawn
Bailment of goods as Security for payment of a

debt or Performance of a promise Bailor in this case is called Pawner Bailee is called Pawnee

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Agency
Agent
A person employed to do any act of another or To represent another in dealings with third person

Principal
The person for whom such acts are undertaken

Agency
Contract creating Agent Principal retationship

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Rules of Agency
I can assign the rights to do those acts which I

have the right to do on my own

Exceptions Some acts are supposed to be done personally & cant be carried out by agents Act of marriage

The acts of agent for all legal purposes are acts

of the principal

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Who may employ an Agent

Any person competent to contract

Minor/ Lunatics can not appoint an agent

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Who may be an Agent

Any person can become an agent

Minors & Lunatics can also be appointed as

agents
But in these cases complete liability is of the

Principal
No Consideration is necessary to create

Agency

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Creation of Agency
Any person who is of the age of majority and isof

sound mind may employ an agent.(section183) Between the principal and the third persons,any person may become an agent. But noperson who is a minor and of unsound mind can become an agent.(184) No consideration is necessary to create anagency.(185) It is not essential that a contract of agency beentered in to. It is sufficient if a person acts onbehalf of another and is accepted by the latter
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Agency Creation
By Express Agreement
X a shop owner appoints Y to manage his shop by

executing Power of Attorney

By Implied Agreement
Inferred from the circumstances of the case

Includes

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Implied Agency
By Estoppel
Person by words or conduct induces 3rd party to

believe certain person is his agent X tells to Y in presence of Z that X is Zs agent & Z does not Contradict
By Holding out
A person by his past affirmative & positive conduct

leads 3rd person to believe person doing some act on his behalf is doing with authority X allows Y his servant to buy goods on credit from Z
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Implied Agency
By Necessity
Actual & definite necessity for acting on behalf of

principal Impossible to obtain consent of the principal

By ratification
A without authority buys goods for B
B sells those goods to C on his own account Bs conduct implies a ratification of purchase made

for him by A
By Operation of Law
Law treats one person as the agent of another
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Partnership- All partners are agents of each other

Other Agency Terms

Sub Agent
A person employed by & acting under the control of

original agent on agency business

Substituted Agent
Agent names or appoints a substituted agent at the

request of Principal & the original agent altogether drops out of the scene

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Types of Mercantile Agents

Factor

Commission agent
Del credere Agent Broker Auctioneer

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Duties of Agent
Follow principals directions or customs

Carry out work with reasonable skill & diligence

Render accounts to principal Communicate in case of difficulty Not to deal on his own account Not to make any profit out of agency except

remunneration On termination of agency due to death or insanity of principal

To Protect & preserve the interests entrusted with
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him

No to delegate authority

Rights of Agent
Receive Remuneration

Retain sum received on account of principal

Particular Lein- To retain goods Indemnified against consequences of lawful acts

& acts done in goods faith Compensation for injuries sustained due to principals neglect or lack of skills Stoppage of goods in transit

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Rights of Principal
Right to repudiate the Transaction

To claim any resulted benefit from Agency

Right to Recover Damages To Resist Agents claim for Indemnity

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Duties of Principal
To indemnify against consequences of all lawful

acts of agent To indemnify the agent against consequences of acts done in good-faith To pay compensation against agentsinjury To pay the agent the commission orother remuneration agreed.

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Termination of Agency
According to section 201, an agency is

terminated by:
By an agreement between the parties, or By the principal revoking his authority; or By the agent renouncing the business of agency; or

By the business of agency being completed; or

By either the principal or the agent dying or

becoming of unsound mind; or By the principal being adjudicatedan insolvent under the provisions of any Act for the time being in forcefor relief of insolvent debtors.
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Termination of Agency
Termination of Agency

By Act of Parties

Agreement
Revocation by the Principal Renunciation by the Agent
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By Operation of Law Completion of Business of Agency Expiry of Time

Death of Principal or Agent Insanity of Principal or Agent Insolvency of Principal Destruction of Subject
Principal or agent become Alien Enemy

Dissolution of Company

Thank You!!

(c) Prof. Neha Patel, GLS Management Programs