Indemnity Bailment Pledge Guarantee

Indemnity Bailment Pledge Guarantee - Transcript

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Contracts of Indemnity Guarantee Contracts of Bailment Pledge Contract of Agency By Group No 2
Parikshit Jain Singh Suneet Sharma Varun Anushree

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


All Contracts of Insurance are contracts of Indemnity except Life insurance

Parties in a Contract of Indemnity
1 2 Indemnifier Promisor the person who promises to make good the loss Indemnified Indemnity holder Promisee the person whose loss is to be made good

Essentials for a contract to Indemnity
1 There must be a loss 2 The loss must be caused either by the promisor or by any other person 3 Indemnifier is liable only for the loss 4 It may be express or implied
Thus it is clear that this contract is contingent in nature and is enforceable only when the loss occurs

a

A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs 200 This is a contract of indemnity A and B go into a shop B says to the shopkeeper Let him A have the goods I will see you paid

b

Goulston Discount Co Ltd Vs Clark 1967 2 Q B 493

1 2 3

All damages All costs of suit All sums Thus it is clear that this contract is contingent in nature and is enforceable only when the loss occurs

The rights of indemnifier are similar to the rights of surety under S 141 viz he becomes entitled to the benefits of all the securities which the creditor has against the principal debtor whether he was aware of them or not

rights of surety discussed later

A contract to perform the promise or discharge the liability of a third person in case of his default



Surety The person who gives the guarantee Principal Debtor The person in respect of whose default the guarantee is given Creditor The person to whom the guarantee is given

a S requests C to lend Rs 500 to P and guarantees that if P fails to pay the amount he will pay


S in this case is the surety C is the creditor and P is the principal debtor

b S and P go into a shop S says to the shopkeeper C Let P have the goods and if he does not pay I will Birkymr Vs Darnell 1704 1 Salk 27



Security of loans guarantee may be given for the
payment of debt or for the payment of the price of goods sold on credit



Performance bond for the good conduct or
honesty of a person employed in a particular office Fidelity guarantee



Bail bonds a device which ensures that a
criminal defendant will appear for trial If the prisoner does not appear in court as desired then the bond is forfeited

1 2

Concurrence Primary liability in some person other than surety All the essentials of a valid contract It may be written or oral It may be express or implied

3 4 5

Oral

or Written Guarantee

Specific

Guarantee This guarantee is restricted to a specific transaction or engagement For eg availing a loan from a bank Guarantee S 129 Such guarantee covers a series of transactions For eg guarantee furnished to a supplier for making supplies during the next one year

Continuing

Basis of Difference

Contract of Indemnity S 124 Two parties a Indemnifier b Indemnified One contract between the indemnity holder Indemnified Indemnifier The liability of Indemnifier is primary there is no secondary liability

Contract of Guarantee S 126 Three parties a Principal Debtor b Creditor c Surety Three contracts between a Creditor P D b Surety Creditor c Surety P D Primary liability is that of the Principal debtor the surety s liability is only secondary i e if the debtor does not pay

No of parties

No of contracts

Nature of the liability

Basis of Difference Purpose of contract

Contract of Indemnity S 124 Reimbursement of loss

Contract of Guarantee S 126 Secure performance of contract debt etc by P D Its scope is wider than that of contract of Indemnity as it includes contract of Indemnity also No valuable consideration is available to the surety from the beginning It may arise only in case of default committed by the P D The creditor is entitled to sue the surety in case

Scope of Contract

Its scope is narrower than contract of guarantee as it does not include the contract of guarantee Valuable consideration is available to the indemnifier from the very beginning

Consideration

The indemnity holder is not entitled to sue third

Rights Obligations of Creditor
Rights
1 2

Demand payment from surety Where the surety is insolvent

Obligations
1 2 3

Not to change any terms of the original contract S 133 Not to release or discharge the principal debtor S 134 Not to compound or give time to or agree not to sue the principal debtor S 135


Exceptions to this rule S 136 137 138

4 Not to do any act inconsistent with the rights of the surety S

139



S 130 By a notice of revocation S 131 By death of surety S 133 By variance in terms of contract S 134 By discharge of principal debtor S 135 By composition extension of time or promise not to sue S 139 By impairing surety s remedy S 141 By loss of security



A bailment is the delivery of goods by one person 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
Bailor Person delivering the goods Bailee Person to whom the goods are

delivered

a

A delivers a piece of cloth to B a tailor to be stitched into a suit This is a contract of bailment between A B A lends a book to B to be returned after the exams An insurance company places a damaged insured car of A in possession of R a repairer A is the bailor the insurance company is the bailee and R is subbailee

b c

1

Bailment is based on a contract
Exception bailment is implied by law as between the finder of goods the owner

1

Temporary delivery of the possession of goods S 149
Actual delivery Constructive delivery

1 2

Delivery of goods must be for some purpose Return of specific goods
Bailment is concerned only with goods such as every kind of movable

1

Deposit delivery of some valuables to a neighbor for safe custody without charge Commodatum lending a bicycle to a friend for his use without charge Hire hiring a bicycle or giving a watch for repair Gratuitous bailment where no consideration passes between the bailor bailee E g A lends a book to his friend B Non gratuitous bailment where consideration passes between the bailor bailee E g where A hires a bicycle

2

3 4

5

1

To disclose known faults S 150
e g A lends a horse which he knows to be vicious to B He does not disclose that the horse is vicious The horse runs away and B is thrown injured A is responsible to B for damage sustained



In case goods are bailed for hire bailor s responsibility is greater he is responsible even for those faults which are not known to him e g A hires a carriage of B The carriage is unsafe though B is not aware of it and thereby A gets injured B is responsible to A for the injury



In a gratuitous bailment however the bailor is responsible only for those faults which are known to him which are not disclosed

2

To bear extraordinary expenses of bailment
e g A leaves his car with B a friend for safe custody for 2 months B has to pay Rs 100 per month to the night watchman for keeping a watch over the car It is the duty of A to pay B the necessary expenses incurred by B

3

To indemnify bailee for loss in case of premature termination of gratuitous bailment S 159
e g A lends an old discarded bicycle to B for 3 months B incurs Rs 120 on its repairs If A asks for the return of the bicycle in 1 month he will have to compensate B for expenses incurred by B in excess of the benefit derived by him

4 To receive back the goods 5 To indemnify the bailee S 164

1 2

To take reasonable care of goods bailed Duty not to make unauthorized use S 154 e g A lends a horse to B for his riding only B allows C a member of his family to ride the horse C rides with care but the horse accidently falls and is injured B is liable to make compensation to A for the injury caused to the horse

3 4 5

Duty not to mix bailor s goods with his own S 155 157 Duty to return the goods bailed S 160 Duty to return any accretion of goods bailed S 163 e g A leaves a cow in the custody of B to be taken care of The cow has a calf B is bound to deliver the calf as well as the cow to A

1 Right to Sue S 180 181 2 Right to terminate the contract if the bailee acts against the terms of the contract S 153 e g A lends a horse to B for his own riding only B uses the
horse with a carriage A can terminate the bailment

3 Right to receive the goods back S 160

4

Right to be indemnified for any loss if the bailee acts against the terms of the contract S 154 e g A hires a horse in Delhi from B expressly to ride it till
Ghaziabad A rides with due care but rides it to Haridwar instead The horse accidently falls and is injured A is liable to indemnify B for the injury to the horse

5 Right to receive increase or growth of bailed goods S 163 6 Right to receive damages in case of mixing the goods without the consent of the bailor S 156 157

Rights of Bailee


Right of Lien right of a person to retain possession of some goods
belonging to another until some debt or claim of the person in possession is satisfied All duties of the bailor become the rights of bailee





Finder of lost goods
Right to retain the goods S 168 as such he can retain the

goods against the owner until he receives compensation for trouble expense incurred in preserving the goods finding out the owner Right to sell S 169 If the owner cannot be traced with reasonable diligence If found he refuses to pay the lawful charges to the finder If the goods are in danger of perishing or of losing the greater

1 On the expiry of the period when bailment is for a specific period 2 On the achievement of the object 3 Inconsistent use of goods 4 Destruction of the subject matter 5 Gratuitous bailment 6 Death of the bailor or bailee

The bailment of goods as a security for the payment of a debt or performance of a promise is called Pledge The bailor in this case is called a Pawnor and the bailee is called Pawnee

Pawnor The bailor in this case Pawnee The bailee in this case

If A borrows Rs 200 from B and keeps his watch as a security for payment of the debt the bailment of watch is pledge
Any kind of movable property i e goods valuable

documents property papers etc or valuables jewellery car etc may be pledged
Delivery is compulsory to complete a Pledge

If because of the bulk of the property actual delivery is impracticable a symbolic delivery will suffice e g keys to a safe deposit box

1 Pledge by Mercantile agent S 178 2 Pledge by seller or buyer in possession after sale e g S sells 100 bags of wheat to B delivery payment of price to be
made in the next 3 months Before the goods are delivered to B S pledges the goods with P who acts bona fide and has no notice of the prior sale The pledge is valid

3 Pledge by a person with limited interest S 179 e g F finds a watch on a road and pledges it with P for Rs 200 F
had however incurred Rs 100 in getting the watch repaired The owner can get the watch by paying Rs 100 to P the pledgee

4 Pledge by a co owner in possession

Pledge is a special kind of Bailment Thus all Pledges are Bailments but the reverse is not true Bailment
1 Bailment can be for many reasons ranging for reward to gratuitous 2 3 The bailee does not get a right to sell the goods The bailee only get a right of lien over the goods The bailee can use the goods bailed The bailee is not responsible for the loss destruction or deterioration if he uses the goods with reasonable care

Pledge
1 A pledge is bailment done for a specific type of purpose which is to secure a loan or performance of a promise 2 3 A pawnee has a right to sell the goods in case of default A pawnee gets a right of retainer and a special interest in the goods which is more that just the lien The pawnee has no right to use the goods The pawnee is absolutely liable for the upkeep of the goods

4 5

4 5



Right to sue the pledgor on default Right to sell the things pledged on giving suitable notice to the pledgor Right to claim damages because of non disclosure of any defect or fault Right to claim damages suffered because of defective title of the pledgor Pledgee s rights are not limited to his interest in goods Right to recover any extraordinary expenditure







Taking care of the goods Not putting the goods to unauthorised use Return of goods including accruals on payment of debt


Rights and duties of a Pledgor can be drawn from the above duties and rights of a Pledgee respectively

Agency is a special type of contract The concept of agency was developed as one man cannot possibly do every transaction himself Hence he should have opportunity or facility to transact business through others like an agent
An

agent is a person employed to do any 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 called the principal Sec 182 must be distinguished from a servant

Agent

a

A being P s agent with authority to receive money on his behalf receives from T a sum of money due to P T is discharged of his obligation to pay the sum in question to P Ram while purchasing a house hires a broker an agent to negotiate the price of the house on behalf of Ram with a third person

b



WHO MAY EMPLOY AGENT Any person who is of the
age of majority according to the law to which he is subject and who is of sound mind may employ an agent section 183 Thus any person competent to contract can appoint an agent



WHO MAY BE AN AGENT As between the principal and
third persons any person may become an agent but no person who is not of the age of majority and of sound mind can become an agent so as to be responsible to his principal according to the provisions in that behalf herein contained section 184
The significance is that a Principal can appoint a minor or

person of unsound mind as agent In such case the Principal will be responsible to third parties However the agent who is a minor or of unsound mind cannot be responsible to Principal Thus Principal will be liable to third parties for acts done by Agent but agent will not be responsible to Principal for his i e Agent s acts



CONSIDERATION NOT NECESSARY No

consideration is necessary to create an agency section 185 Thus payment of agency commission is not essential to hold appointment of Agent as valid

Excepting matters of personal nature A person acting through an agent is acting himself c Since agency is a contract all usual requirements of a valid contract are applicable to agency contract also d No consideration is necessary to create an agency
a b



Express Agency S 187 The agent may in such a case be appointed either by word of mouth or by an agreement in writing Implied Agency S 187 A and P are brothers A lives in Delhi while P lives in Meerut A with the knowledge of P leases P s land in Delhi He receives the rent and delivers it to P A is the agent of P though not expressely appointed as such





Agency by Estoppel or Holding out S 237 when a person has by his conduct or statements induced others to believe that a certain person is his agent he is estopped from subsequently denying it
e g Paras allows Varun to represent as his agent by telling Cooper that Varun is Paras s agent Later on Cooper supplied goods to Varun thinking him to be Paras s agent Paras shall be liable to pay the price to Cooper By allowing Varun to represent himself as his agent Paras leads Cooper to believe that Varun is really his agent



Agency by operation of law when a company is formed its promoters are its agents by operation of law



Agency of Necessity S 189 a horse was sent by train When it arrived at the station of destination nobody took its delivery The railway company therefore had to feed the horse Held the railway company was an agent of necessity and could recover the amount spend on feeding the horse
Great Northern Railway Vs Swaffield 1874 L R 9Ex 132



Agency by Ratification or Ex post facto Ss 196 200 A person may act on the behalf of another without his knowledge or consent and if that person on whose behalf the act is done accepts such an act even if done without his consent he is said to have ratified that act places the parties in the same position where they d have been if the act was done with consent

1 2 3 4

5

6 7

Special Agent appointed to perform a particular act or represent his principal in some particular transaction General Agent has authority to do all acts connected with a particular trade business or employment e g manager of a firm Universal Agent his authority to act for the principal is unlimited can even bind his principal by any lawful act which he does Factor is entrusted with the possession of the goods for the purpose of sale Besides this job he has the power to sell the goods on credit and to receive the price from the buyers Broker he has an authority to negotiate at the time of sale or purchase of goods on the behalf of his principal with a third person Unlike factor he himself has no possession of the goods Auctioneer he sells goods or other property by auction i e by open sale Del Credere Agent on the payment of some extra commission he guarantees the performance of the contract by the third person

These

includes attorneys solicitors insurance agents clearing and forwarding agents and wife etc

Duties
To conduct the business of an agency according to the principal s directions and not deviate even for the benefit of the principal To conduct the business with the skill and diligence generally possessed To render proper accounts to his principal To communicate with principal in case of difficulty Not to make any secret profits Not to deal on his own account To preserve protect the interest of the principal in case of his death or

Rights
Right to receive agreed and reasonable remuneration

Right to retain money of the principal towards advances expenses Right of lien i e to retain properties of the principal for commission expense etc Right of compensation for any injuries sustained by him by neglect or want of skill on the part of the principal Right to be indemnified for all acts done within his rights

Duties Pay remuneration to agent as agreed Indemnify agent for lawful acts done by him as agent

Rights Recover damages from agent if he disregards directions of Principal Obtain accounts from Agent

Indemnify Agent for all acts done by Recover money collected by Agent him in good faith on behalf of Principal Indemnify agent if he suffers loss due to neglect or lack of skill of Principal Obtain details of secret profit made by agent and recover it from him Forfeit remuneration of Agent if he misconducts the business

an

agency is terminated by the principal revoking agent s authority by mutual agreement between the principal agent by the business of the agency being completed by either the principal or agent dying or becoming of unsound mind by the principal s insolvency expiry of time by destruction of subject matter by dissolution of a company



Agency coupled with interest Sec 202
e g P gives authority to A to sell P s land and to pay himself out of the proceeds the debt due to him from P P cannot revoke this authority nor is it terminated by his insanity or death



Agent has partly exercised his authority Sec

203


Agent has incurred personal liability