Unit 1 Law of Contract-II
Unit 1 Law of Contract-II
Unit 1 Law of Contract-II
CONTRACT-II
Anchal Mittal (Asst. Professor)
GUARANTEE
INDEMNITY
CHAPTER VIII
Meaning
It is protecting against loss, esp. in the form of a promise to pay, or payment for loss of
money, goods, etc.
The person who promises to indemnify is known as indemnifier, and
The person in who favour such a promise is made is known as indemnified or indemnity
holder.
indemnifier indemnified or
indemnity
holder.
Promisor Promisee
CONTRACT OF INDEMNITY
Chapter VII
According to Section 124 Contract of indemnity is defined to be ‘ 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 other person is called a ‘contract
of indemnity’.
Illustration
A contracts to indemnify B against the consequence of any proceedings which C may take against B
in respect of a certain sum of 200 rupees. This is contract of indemnity.
CONT..
Parties In
Contract Of
Mr. XYZ Guarantee
(Secondary liability) Bank
1
3 Mr. ABC
FEATURES OF CONTRACT OF
GUARANTEE
The Contract may be either oral or written (Section 126),
There should be a principle debtor (primary liability)
Consideration for Guarantee (Section 127)
Consent of the surety should not have been obtained by
misrepresentation (Section 142) or concealment (Section 143).
GUARANTEE : KINDS
Specific guarantee
(single debt or specific transaction & Continuing guarantee
is to come to an end when the
guaranteed debt is paid or the promise
(guarantee which extends
is duly performed) to a series of transactions is
called a continuing
guarantee (Section129))
CONTINUING GUARANTEE &
REVOCATION OF CONTINUING
GUARANTEE
According to section 129, A guarantee which extends to a series of transactions, is called a
“continuing guarantee’’.
Illustrations: A, in consideration that B will employ C in collecting the rent of B‟s zamindari,
promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment
by C of those rents. This is a continuing guarantee.
Revocation of Continuing Guarantee: (Section 130)
A continuing guarantee can be revoked for future transactions not existing debts (final).
Revoked by the surety, as to future transactions,
by giving notice to the creditor,
The death of the surety operates, as a revocation of a continuing guarantee, so far as regards
future transactions. (in the absence of any contract to the contrary).(Section 131)
SURETY: LIABILITY &
DISCHARGE
According to Section 128 the liability of the surety is co- extensive with that of the principal debtor,
unless it is otherwise provided by the contract.
Illustration: A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is
dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and charges
which may have become due on it.
Guarantee
which one party promises the other Creditor and Principle debtor
from loss caused to him by the
contract of the promisor himself, or -A “contract of guarantee” is a
by the conduct of any other person. contract to perform the promise,
(section 124) or discharge the liability, of a
third person in case of his
- The liability arises on the default. (Section 126)
happening of a contingency.
-The liability arises, if there is
- The object of Contract of default by Principle debtor.
Indemnity is to reimburse the loss.
- The object is to provide
security to creditor.
CONTRACT OF
BAILMENT
BAILMENT
CHAPTER IX
According to section 148 of the Indian contract act 1872,
A “bailment” is 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.
For example, Ram delivering his car for
Service at the car service.
Bailor (The
person delivering Bailee (The person
the goods) to whom they are
delivered)
Bailment
Bailment is a involves transfer
contract of possession of
goods
The transfer
Bailment is of
under bailment is
movable goods
temporary
TYPES OF DELIVERY
Non Gratuitous
Gratuitous Bailment Bailment (Bailment
for Reward)
CONT.
Ultzen vs. Nicols, 1894
Facts: A customer went to a restaurant to dine there. When he entered the restaurant, a waiter without being
asked for help, took his coat. The waiter, who worked in the restaurant, hung the coat on a hook behind the
customer. When the customer rose to leave, the coat was no longer there on the hook.
Held: The waiter had merely acted in courtesy to a customer of the restaurant. However, once the waiter
took the coat in his possession, he had relieved the customer of its care. Thus, the waiter took on the
responsibility of a bailee. Further, it was the waiter who selected the place where the coat was to be hung
without any direction from the gentleman. Therefore, the restaurant keeper was held liable for the loss of
the coat.
If the customer had instructed the waiter where and how the coat should be put, the result, perhaps, would
have been otherwise.
To create a bailment, the bailee must intend to possess and in some way physically possess or control the
bailed goods or property. In a situation where a person keeps the goods in possession of another person but
in fact, continues to have control over such goods, there is no delivery for the purpose of bailment.
CONT.
Kaliaporumal Pillai vs. Visalakshmi,1938
Facts: A lady, A, gave her jewelry to a goldsmith to melt and use in making new jewelry for
her. Every evening, A received the semi-finished jewelry from the goldsmith and put it in a
box in the goldsmith’s room. Then, A would lock the box herself and leave the goldsmith’s
place with the key in her possession. One night, the box so locked was stolen from the room
and the jewelry within it was lost. A brought an action against the goldsmith.
Held: The goldsmith was not liable as any bailment in this case came to an end when the
lady received the semi-finished jewelry from the goldsmith every evening. Leaving the
locked box in the defendant’s premises was not enough to constitute delivery under Section
149 especially since the lady kept the keys with herself. Without legal possession, there
cannot be any bailment and there was no duty on the goldsmith to take care of the box.
BAILOR: RIGHTS
Right to recover damages-Bailor can claim for the damages that arise due to bailee’s negligence. He can
also claim damages arising due to unauthorized use of goods. (Sec. 152 possess a duty on he bailee to take
care of the goods)
Example- A bailed some goods to Z but due to the negligence of Z the goods were stolen. A can recover the
damages
Right to terminate bailment- According to Sec. 153 the bailor can terminate the bailment if the bailee does
any act which is inconsistent with the terms of bailment.
Compensation incases of goods of bailor and bailee are mixed by bailee (Sec. 155-157)
CONT…
Right to recover goods (Gratuitous bailment) [Sec. 159]
Right to get the goods back- According to Sec. 160 on the expiry of the agreed duration
of bailment or when the objective of bailment or when the objective of bailment has been
fulfilled the bailor is entitled to get back the goods under bailment.
Example- S give a car to M on hire for 5 days. M fails to return on 5th day. S can claim
damages.
Right to claim increase- The Bailor can claim any increase or profit, which may accrued
from the bailed goods. (Sec. 163)
Example-A bailed a cow to K. Cow gave birth to a calf. A can claim cow along with calf.
BAILOR: DUTIES
It is the duty of a bailor to disclose all faults. If bailor fails to disclose such faults
then he will be responsible for the damage caused to goods or loss suffered by the
bailee.
The bailor is under the duty to pay the extraordinary expenses incurred by the
bailee for such bailment.
It is the duty of the bailor to indemnify the bailee for the cost incurred due to
the defective title of goods bailed to the bailee.
It is the duty of the bailor to accept the goods after the purpose for which such
goods were bailed is accomplished.
BAILEE : RIGHTS
The following are the cases where the rights of Lien have been recognized:
An unpaid seller had a Lien over the goods in possession.
The agent had a lien on the property of the principal for unpaid
remuneration.
A bailee had a lien on the property in his possession.
LIEN : KINDS
Rights of Pawnee- Right to retain Goods, right to get the compensation, Right to
Sell, To get extraordinary expenses incurred by him.
Duties of Pawnee- Duty to take reasonable care, Duty to give back the goods
after repayment of the loan, Duty not to make unauthorized use of goods, Duty to
give back the owner any increment in the goods, Duty not to mix the goods.
PLEDGE BY NON-
OWNERS
Ordinarily, the owner of the goods would pledge them to secure a
loan but the law permits under certain circumstances a pledge by a
person who is not the owner but is in possession of the goods.
Therefore, a valid pledge may be created by the following non-
owners-
A mercantile agent
Pledge by co-owner in possession
Pledge by person in possession under a voidable contract
Pledge where pawnor having limited interest
Pledge by seller or buyer in possession after sale
LAW OF
AGENC
Y
AGENCY
CHAPTER X
‘Agent’ according to Section 182 is a person employed to do any act for another or to represent
another in dealing with third persons.
‘Principal’ according to Section 182, is the person for whom such act is done, or who is so
represented.
For Example- A, a storeowner, delegates B to buy some goods on his behalf. Here, A is the principal
and B is the agent, and the person from whom the goods are bought is the ‘Third Person’.
Any person who has attained the age of majority and has a sound mind can appoint an agent as per
Section 183. Minors and persons of unsound mind cannot appoint an agent.
Similarly, the person who has attained the age of majority and has a sound mind can become an
agent as per Section 184. A sound mind and a mature age is a necessity because an agent has to be
answerable to the Principal.
According to Sec. 185 Consideration is not necessary to create an agency.
CREATION OF AGENCY
Direct (express) appointment (Sec. 186): The standard form of creating an agency is by direct
appointment. When a person, in writing or speech appoints another person as his agent, an agency is
created between the two.
Implication (Sec. 186/187): When an agent is not directly appointed but his appointment can be
inferred from the circumstances, an agency by implication is created.
Necessity (Sec. 189): In a situation of necessity, one person can act on behalf of another to save the
person from any loss or damage, without expressly being appointed as an agent. This creates an agency
out of necessity.
Estoppel: If one person behaves in such a manner in front of a third person, as to make someone believe
he is an authorized agent on behalf of someone, an agency by estoppel is created.
Ratification: When an act of a person, who acted as another person’s agent (on his behalf) without his
knowledge is later ratified by that person, this creates an agency by ratification between the two.
Read Section 186 to 190
AGENCY : TERMINATION &
ENDS
When the agent’s authority is revoked by the Principal
When the agent renounces the business of the agency
When the business of the agency is completed
When either of the parties dies or becomes mentally disabled
When the Principal is adjudicated an insolvent
Performance of the Contract of agency.
By agreement between the Principal and Agent
By revocation of the authority by the Principal
By renunciation of the authorities by the Agenct