INDEMNITY
Definition: SEC. 124- 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”.
Examples
[Link]. A contracts with the Government to return to India
from abroad after completing his studies and serve the
Government for a fixed period. He fails to return to India.
This is a contract of indemnity and he is bound to
reimburse the Government.
A person who promises to make good the losses, i.e., the
promisor is called the indemnifier and the person whose
loss is to be made good, i.e., the promisee is called the
indemnity-holder or the person who is indemnified .
Features
TWO parties- Indemnity- holder Indemnifier
Essential elements of contract should be
satisfied.
All insurance contracts are contracts of
indemnity except life insurance.
Contract may be express and implied
Implied contract of indemnity comes from the
circumstances of the cases or the relationship
between the parties.
Rights of Indemnity Holder
• To claim for all damages which he may be
compelled to pay in any matter to which the
promise to indemnify applies
• To claim for all costs which he may be
compelled to pay
• All Other payments may have paid upon
compromise of such suit
GUARANTEE
• Definition: SEC. 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. E.g. Guarantee
for credit sales.
• Example- P lends tk.5000 to Q and R promises
to P that if Q does not pay money R will do so.
• Surety/ Guarantor- Who gives Guarantee
• Principal Debtor- For whom guarantee is given
• Creditor- To whom guarantee is given
Features
• Valid Contract
• May be oral or written
• Consideration for surety is loan given by creditor.
Consideration received by principle debtor is
taken sufficient consideration for the surety.
• Liability of surety arises immediately when
principal debtor makes default. But primary
liability is that of principal debtor.
• There are three parties
• The principal debtor may be minor
Contracts of guarantee which are
invalid
• Misrepresentation any guarantee obtained by
means of misrepresentation by the creditor or
with his knowledge and assent concerning a
material part of the transaction is invalid.
• Concealment- creditor obtains guarantee by
means of keeping silence.
• When co –surety does not join
• Lack of essential elements
Difference between indemnity and guarantee
Contract of indemnity contract of guarantee
Two parties Three parties
It is necessary to have only one contract It is necessary to have three contracts
between parties
The liability of indemnifier is primary The liability of the surety is secondary. The
liability of surety arises only when the
principle debtor fails to perform his
obligation
The liability of the indemnifier arises only on There is an existing debt or duty , the
the happing of a contingency performance of which is guaranteed by the
surety
The indemnifier can not sue only the The surety of a contract of guarantee can
indemnity holder for his loss, because there proceed against principal debtor.
is no contract between the indemnified and
other parties
The loss falls on the indemnifier except in The surety after discharges the debt to the
certain cases creditor , can proceed against principal
debtor
Nature & Extent of surety’s liability
• Secondary in nature
• Immediate in nature
• Surety may limit his liability
• Liability in continuing guarantee
• In case of void agreement, surety will still be
liable. E.g. surety for agreement by a minor.
When is a surety discharged from
liability?
• Notice of revocation
• Death of surety
• Variation of contract
• Release or discharge of principal debtor
• Arrangement with principal debtor
• Creditor’s forbearance to sue does not discharge
surety
• Release of one co-surety
• Loss of security
RIGHTS OF SURETY Right against the
principal debtor
• Right of SUBROGATION
• Right of INDEMNITY
RIGHTS OF SURETY Right against the
Creditor
• Right to Claim Securities
• Right of set off
• Right to share reduction
• Right to demand termination of employee
(fedelity insurance)
RIGHTS OF SURETY Right of
contribution against Co- Sureties
• Guarantee for equal amount: Equal
Contribution
• Guarantee for different amounts: Burden of
default to be shared equally up to respective
amount of guarantee.
Bailment and Pledge
• What is Bailment?• Section 148 defines
Bailment as: “The delivery of goods by one to
another person 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.” The person
delivering the goods is called the Bailor, and
the person to whom goods are delivered is
called the Bailee.
Features of bailment
• Contract C,D,P,P,O,M
• Delivery
• Possession
• For some purpose
• Ownership
• Movable goods
• Return of specific goods- Bailment is concerned
only with goods consideration in a contract of
bailment
Classification of bailment
• Gratuitous bailment
• Non-gratuitous bailment or bailment for
reward
Duties of the bailee
• To take reasonable care of the goods bailed.
• Not to make any unauthorized use of goods.
• Not to mix the goods bailed with his own
goods.
• Not to set up an adverse title.
• To return any accretion to the goods.
• To return the goods.
• Liability for negligence of servant
Duties of bailor
• To disclose known faults
• To bear extraordinary expenses of bailment
• To indemnify bailee for loss in case of
premature termination of gratuitous bailment
• To receive back the goods.
• To indemnify the bailee
Rights of bailor and bailee
• Rights of bailor
• 1. Enforcement of rights.
• 2. Avoidance of contract.
• 3. Return of goods lent gratuitously.
• 4. Compensation from a wrong-doer.
• Rights of bailee
• 1. Delivery of goods to one of several joint bailors of goods.
• 2. Delivery of goods to bailor without title.
• 3. Right to apply to court to stop delivery.
• 4. Right of action against trespasser.
• 5. Bailee’s lien.
Termination of bailment
• Efflux of time
• Fulfillment of purpose
• Act inconsistent with the terms
• Goods lent gratuitously
• death
Rights and duties of goods
Rights-
• Possession
• Compensation and lien
• Reward
• Sale
Duties –
• Reasonable care,
• must not mix with his own goods,
• must return to the real owner,
• must not use for own purpose
Pledge
• The bailment of goods as security for payment
of debt or performance of promise is called
pledge or pawn. The bailee is pledgee or the
pawnee.
• Example
Difference between bailment and
pledge
Bailment Pledge
Pledge is a particular kind of bailment
Purpose of pledge is to provide security
for debt or the performance of a promise
Other Purposes are repair, safe custody
etc
Right of pledgee or pawnee
• Right of retainer
• Retainer for subsequent advance
• Extraordinary expenses
• Pawnee’s right where pawnor makes default
Right of pledgor
• Defaultinf pownor’s rihgt to redeem
• Preservation and maintenance
• Protection of debtors
Law of agency
• An Agent is a person employed to do an act
for another or to represent another in
dealings with third persons. The person for
whom such act is done, or who is so
represented, is the Principal . The relationship
between them is called Agency .
Who can be appointed an Agent?
• Any major person and of sound mind may
become an agent to be responsible to the
Principal.
• There is no bar to the appointment of a minor as
an Agent but a minor, however, cannot be held
personally liable.
• The concept of a servant may, in a sense involve
an element of agency but on that account a
servant is not regarded as an agent and an agent
is never a servant.
• It is a matter of control and supervision.
Who can employ an Agent?
• A person who is of the age of majority and is of
sound mind may employ an Agent (Section 183).
No consideration is necessary to create an agency
(Section 185).
• Test of Agency: It is whether a person has the
capacity to bind the Principal by acts done on his
behalf.
• It is the power of an agent to make the principal
answerable to third person that determines
existence of agency.
Agent and Servant
Agent Savant
an agent has to exercise his authority in accordance Servant has to act according to orders of
with the principal’s instruction the master in every particular
An agent is appointed and employed to bring the servant cant do this
principal into contractual relationship with third
parties
An agent can bind the principal to the third parties servant cant do this
Mode of remuneration may vary like commission generally is paid through wages
An agent is liable for wrong done within the scope A master is liable for the wrong of his
of his authority servant if it is committed in course of the
servant’s employment
An agent may work for several principals A whole time servant serves only one
master
Bailee and agent
Bailee Agent
A bailee has possession of goods of the An agent may not have possession of
bailor goods of the principals
The bailee has no power to create Agent has such authority
contractual relationship with the third
party
Under some circumstances a bailee may
act as agent
Different classes of agents
• Broker
• Factor
• A commission agent
• Auctioneer
• A del credere agent
• General agent and particular agent
Methods of creating of agency
• Agency by express agreement
• Agency by implied agreement
• Agency by estoppel or holding out
• Agency of necessity
• Agency of ratification
Agent’s authority
• Express or implied authority
• Extent of authority
• authority in an emergency
Sub agent and co agent
• Sub –agent
Termination of agency
• Termination by act of parties
• Termination by operation of law
Agent’s duties
• Conducting principals business
• Skill and diligent
• To render account
• To communicate with principal
• Not to deal with his own account
• To pay sums received for principal
• principal’s death or insanity
