Contract Act-Specific Contracts

Contract Act-Specific Contracts By Prof. Neha Patel

(c) Prof. Neha Patel, GLS Management Programs

Contracts of Indemnity & Guarantee 

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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  

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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)

(c) Prof. Neha Patel, GLS Management Programs

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.

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The person who gives – gives – „surety‟

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Who defaults – defaults – „principal debtor‟

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To whom who m it is i s given giv en –  – „creditor‟

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It may be oral or written; express or implied

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Essential features

Concurrence/Primary & Secondary liability Essentials of a Valid Contract (in case of principal (c) Prof. Neha Patel, GLS Management debtor being a minor, the surety is regarded as Programs  

Guarantee- Features 

Nature of surety‟s liability (coextensive/limitation)

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Kinds of guarantee (specific / continuing)

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Revocation of Continuing Guarantee (notice/death etc.) Discharge of Surety (surety‟s liability ends) (revocation/creditor‟s conduct/invalidation)

(c) Prof. Neha Patel, GLS Management Programs

Contract of Indemnity vs. Contract of Guarantee COI

COG

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Two parties

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Three parties

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Liability Primary

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Liability secondary

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Only 1 contract

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Total 3 contracts

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Indemnifier not to act on the request of  Indemnified Liability arises only in case of Contingency

(c) Prof. Neha Patel, GLS Management Programs

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Surety to give guarantee upon debtor‟s request Debt/duty already exists the performance of which has been guaranteed

Bailment 

Delivery of goods by 1 person to another 

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For some purpose

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Upon contract that  

When purpose is accomplished Be returned or otherwise disposed of  

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 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”

(c) Prof. Neha Patel, GLS Management Programs

Essential Features of Bailment 

Delivery of Moveable goods

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Goods delivered for some purpose

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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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(c) Prof. Neha Patel, GLS Management Programs

Kinds of Bailment 

Classified on the basis of Benefit or Reward 

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Gratuitous 

No remuneration to any of the parties

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For exclusive benefit of Bailor or Bailee

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Example 

Loan of book to a friend

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Deposit of goods for safe custody

Non-Gratuitous 

Goods given for reward- Remuneration or Consideration

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Example 

Car Let out on Hire

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Tailoring for charges

Pawn or Pledge 

Delivered as security for money borrowed

(c) Prof. Neha Patel, GLS Management Programs

Bailment, Sale & License 

Sale 

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License 

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Ownership is Transferred 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

(c) Prof. Neha Patel, GLS Management Programs

Duties of Bailee 

To take reasonable care of goods delivered to him

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Not to make unauthorized use of goods

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Not to mix bailed goods with own goods

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To return the goods

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To return accretions/increase to goods

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Not to set up any adverse title

(c) Prof. Neha Patel, GLS Management Programs

Duties of Bailor   

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Disclose Faults/ Defects in goods Repay necessary expenses in case of gratuitous bail Repay extra-ordinary expenses in Non-Gratuitous bail

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Indemnify bailee

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Receive Back the goods

(c) Prof. Neha Patel, GLS Management Programs

Rights of Bailee 

Enforcement of bailor‟s duties

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Deliver goods to one of the several joint Bailors

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Deliver goods in good faith to bailor without title

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Lien 

Particular Lien unless otherwise stated

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Rights of Bailor  

Enforcement of Bailees‟ duties

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Terminate bailment if goods used wrongly

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Demand return of goods at any time in case of  Gratuitous bailment

(c) Prof. Neha Patel, GLS Management Programs

Pledge or Pawn 

Bailment of goods as Security for payment of a debt or 

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Performance of a promise

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Bailor in this case is called “Pawner”

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Bailee is called “Pawnee”

(c) Prof. Neha Patel, GLS Management Programs

 Agency 

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

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Principal 

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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 

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Some acts are supposed to be done personally & can‟t be carried out by agents  Act of marriage

The acts of agent for all legal purposes are acts of the principal

(c) Prof. Neha Patel, GLS Management Programs

Who may employ an Agent  

 Any person competent to contract Minor/ Lunatics can not appoint an agent

(c) Prof. Neha Patel, GLS Management Programs

Who may be an Agent  

 Any person can become an agent Minors & Lunatics can also be appointed as agents 

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But in these cases complete liability is of the Principal

No “Consideration” is necessary to create “Agency”

(c) Prof. Neha Patel, GLS Management Programs

Creation of Agency 

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 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 

(c) Prof. Neha Patel, GLS Management Programs

 Agency Creation 

By Express Agreement 

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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 

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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 Z‟s 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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(c) Prof. Neha Patel, GLS Management Programs

Implied Agency 

By Necessity  Actual & definite necessity for acting on behalf of  principal Impossible to obtain consent of the principal

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

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By Operation of Law

Law treats one person as the agent of another  (c) Prof.PartnershipNeha Patel, GLS Management All partners are agents of each other   

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Other Agency Terms 

Sub Agent  A person employed by & acting under the control of  original agent on agency business

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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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(c) Prof. Neha Patel, GLS Management Programs

Types of Mercantile Agents 

Factor 

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Commission agent

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Del credere Agent

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Broker 

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 Auctioneer 

(c) Prof. Neha Patel, GLS Management Programs

Duties of Agent 

Follow principals directions or customs

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Carry out work with reasonable skill & diligence

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Render accounts to principal

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Communicate in case of difficulty

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Not to deal on his own account

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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 him (c) Prof. Neha Patel, GLS Management 

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No to delegate authority

Rights of Agent 

Receive Remuneration

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Retain sum received on account of principal

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Particular Lein- To retain goods

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Indemnified against consequences of lawful acts & acts done in goods faith Compensation for injuries sustained due to principal‟s neglect or lack of skills Stoppage of goods in transit

(c) Prof. Neha Patel, GLS Management Programs

Rights of Principal 

Right to repudiate the Transaction

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To claim any resulted benefit from Agency

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Right to Recover Damages

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To Resist Agent‟s claim for Indemnity

(c) Prof. Neha Patel, GLS Management Programs

Duties of Principal 

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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 agent‟sinjury To pay the agent the commission orother  remuneration agreed.

(c) Prof. Neha Patel, GLS Management Programs

Termination of Agency 

 According to section 201, an agency is terminated by:     

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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.

(c) Prof. Neha Patel, GLS Management Programs

Termination of Agency Termination of   Agency

By Act of Parties

 Agreement Revocation by the Principal Renunciation by the Agent (c) Prof. Neha Patel, GLS Management Programs

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