In the old English law, Indemnity was defined as a promise to save a person harmless from the

consequences of an act. Such a promise can be express or implied from the curcumstances of the
case. This view was illustrated in the case of Adamson vs Jarvis 1872. In this case, the plaintiff,
an auctioneer, sold certain goods upon the instructions of a person. It turned out that the goods
did not belong to the person and the true owner held the autioneer liable for the goods. The
auctioneer, in turn, sued the defendant for indemnity for the loss suffered by him by acting on his
instructions. It was held that since the auctioneer acted on the instructions of the defendant, he
was entitled to assume that if, what he did was wrongful, he would be idemnified by the
defendant.

The Contracts of Indemnity has been defined as: "A Contract whereby 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."

This definition provides the following essential elements – 

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.

Thus, it is clear that this contract is contingent in nature and is enforceable only when the loss
occurs.

Indemnity, in simple words, is protection against future loss.

The person who promises to save the other is called the Indemnitor or Indemnifier and the
person who is compensated is the Indemnitee, Indemnified or the indemnity-holder. An
indemnity can be defined as a sum paid by A to B by way of compensation for a particular loss
suffered by B. A, the indemnitor may or may not be responsible for the loss suffered by the B,
the indemnitee. Forms of indemnity include cash payments, repairs, replacement, and
reinstatement.
Contract of Indemnties should all satisfy the conditions of a valid contract.
All Contracts of Insurance are Contracts of Indemnity except life insurance.
Rights of the indemnity holder

Section 125, defines the rights of an indemnity holder. These are as follows - 
The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to
recover from the promisor –

i. Right of recovering Damages - all damages that he is compelled to pay in a suit in

respect of any matter to which the promise of indemnity applies.
ii. Right of recovering Costs -all costs that he is compelled to pay in any such suit if, in
bringing or defending it, he did not contravene the orders of the promisor and has acted
as it would have been prudent for him to act in the absence of the contract of
indemnity, or if the promisor authorized him in bringing or defending the suit.

In the case of ADAMSON vs. JARVIS [1827] 4 BING 66, Adamson was entitled to recover the
money he had to pay to the true owner of the cattle as well as any expenses incurred by him to
get a legal counsel, etc.

iii. Right of recovering Sums -all sums which he may have paid under the terms of a
compromize in any such suite, if the compromize was not contrary to the orders of the promisor
and was one which would have been prudent for the promisee to make in the absence of the
contract of indemnity, or if the promisor authorized him to compromize the suit.

As per this section, the rights of the indemnity holder are not absolute or unfettered. He must act
within the authority given to him by the promisor and must not contravene the orders of the
promisor. Further, he must act with normal intelligence, caution, and care with which  he would
act if there were no contract of indemnity.

In the case of Mohit Kumar Saha vs New India Assurance Co AIR 1997, Calcutta HC held
that the indemnifier must pay the full amount of the value of the vehicle lost to theft as given by
the surveyor. Any settlement at lesser value is arbitrary and unfair and violates art 14 of the
constitution.

Commencement of liability

In general, as per the definition given in section 124, it looks like an idemnity holder cannot hold
the indemnifier liable untill he has suffered an actual loss. This is a great disadvantage to the
indemnity holder in cases where the loss is imminent and he is not in the position to bear the
loss. In the case of Gajanan Moreshwar vs Moreshwar Madan, AIR 1942, Bombay high
court observed that the contract of indemnity held very little value if the indemnity holder could
not enforce his indemnity untill he actually paid the loss. If a suit was filed against him, he had to
wait till the judgement and pay the damages upfront before suing the indemnifier. He may not be
able to pay the judement and could not sue the indemnifier. Thus, it was held that if his liability
has become absolute, he was entitled to get the indemnifier to pay the amount.
 Rights of the indemnifier:

The rights of the indemnity-holder are the duties of indemnifier, and duties of the indemnity-
holder are the rights of the indemnifier.

Indemnifier is not liable for indemnity.

i. If indemnity-holder acts negligently.

ii. If indemnity-holder is acting with the intention of causing any loss or
damage.
iii. If he is acting against the instructions of the other party (promisor).

Contract of Indemnity (Section 124) Contract of Guarantee (Section 126)

It is a bipartite agreement between the indemnifier and
indemnity-holder.
Liability of the indemnifier is contingent upon the loss.
Liability of the indemnifier is primary to the contract.
The undertaking in indemnity is original.
There is only one contract in a contract of indemnity -
between the indemnifier and the indemnity holder.
The reason for a contract of indemnity is to make good
on a loss if there is any.
Once the indemnifier fulfills his liability, he does not get
any right over any third party. He can only sue the
indemnity-holder in his own name.
It is a tripartite agreement between the Creditor, Principal
Debtor, and Surety.
Liability of the surety is not contingent upon any loss.
Liability of the surety is co-extensive with that of the
principal debtor although it remains in suspended
animation until the principal debtor defaults. Thus, it is
secondary to the contract and consequenty if the principal
debtor is not liable, the surety will also not be liable.
The undertaking in a guarantee is collateral to the original
contract between the creditor and the principal debtor.
There are three contracts in a contract of guaratee - an
original contract between Creditor and Principal Debtor, a
contract of guarantee between creditor and surety, and an
implied contract of indemnity between the surety and the
principal debtor.
The reason for a contract of guarantee is to enable a third
person get credit.
Once the guarantor fulfills his liabilty by paying any debt to
the creditor, he steps into the shoes of the creditor and
gets all the rights that the creditor had over the principal
debtor.
Bailment

Bailment is a kind of activity in which the property of one person temporarily goes into the
possession of another. The ownership of the property remains with the giver, while only the
possession goes to another. Several situations in day to day life such as giving a vehicle for
repair, or parking a scooter in a parking lot, giving a cloth to a tailor for stitching, are examples
of bailment. Section 148 of Indian Contract Act 1872, defines bailment as follows - 

Section 148 -  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. The person delivering the
goods is called the bailor and the person to whom they are delivered is called the bailee.

Explanation - If a person is already in possession of the goods of other contracts to hold them as
a baliee, he thereby becomes the bailee, and the owner becomes the bailor of such goods,
although they may not have been delivered by way of bailment.

According to this definition the following are the essential elements of bailment – 

1. There should be a contract: A bailment is based on a contract, i.e., it is created by a contract.

The contract of bailment may be express or implied. In some cases e.g., in case of finder of
goods, a contract of bailment can be implied by law.

2. Delivery of goods by one person to another: The possession of goods must transfer from
one person to another. Delivery is not same as custody. For example, a servant holding his
master's umbrella is not a bailee but only a custodian. The goods must be handed over to the
bailee for whatever is the purpose of the bailment. 

In Ultzen vs Nicols 1894, the plaintiff went to a restaurant for dining. When he entered the room,
the waiter took his coat and hung it on a hook behind him. When the plaintiff arose to leave, the
coat was gone. It was held that the waiter voluntarily took the responsibility of keeping the coat
while the customer was dining and was thus a bailee. Therefore, he was liable to return it.

Contrasting this case with Kaliaperumal Pillai vs Visalakshmi AIR 1938, we can see the
meaning of delivery. In this case, a woman gave some gold to a jeweler to make jewelery. Every
evening she used to take the unfinished jewels, put it in a box, lock the box and take the keys of
the box with her while leaving the box at the goldsmith. One morning, when he opened the box
the gold was gone. It was held that, in the night, the possession of the gold was not with the
jeweler but with the plaintiff because she locked the box and kept the keys with her.
As the explanation to section 148 says, even if a person already has the possession of goods that
he does not own, he can become a bailee by entering into a contract with the bailor. In such a
case, the actual act of delivery is not done but is considered to be valid for bailment. 

Types of Delivery - As per section 149, the delivery to the bailee may be made by doing
anything which has the effect of putting the goods in the possession of the intended bailee or of
any person authorized to hold them on his behalf.  This means that the delivery can be made to
either the bailee or to any other person whom the baliee authorizes. This person can be the bailor
himself. This gives us two types of delivery - Actual and Constructive.  In actual delivery, the
physical possession of the goods is handed over to the bailee while in constructive delivery the
possession of the goods remains with the bailor upon authorization of the bailee. In other words,
the bailee authorizes the person to keep possession of the goods.

In Bank of Chittor vs Narsimbulu AIR 1966, a person pledged cinema projector with the bank
but the bank allowed him to keep the projector so as to keep the cinema hall running. AP HC
held that this was constructive delivery because something was done that changed the legal
possession of the projector. Even though the physical possession was with the person, the legal
possession was with the bank.

3. Delivery upon contract: For a valid bailment, the delivery must be done upon a contract that
the goods will be returned when the purpose is accomplished. If the goods are given without any
contract, there is no bailment.

 In State of Gujarat vs Menon Mohammad AIR 1967, SC held that bailment can happen even
without an explicit contract. In this case, certain motor vehicles were seized by the State under
Sea Customs Act, which were then damaged. SC held that the govt. was indeed the bailee and
the State was responsible for proper care of the goods.

 4. Conditional Delivery: The delivery of goods is not permanent. The possession is given to the
bailee only on the condition that he will either return the goods or dispose them according to the
wishes of the bailer after the purpose for which the goods were given. For example, when the
stitching is complete, the tailor is supposed to return the garment to the bailor. If the bailee is not
bound to return the goods to the bailor, then the relationship between them is not of bailment.
This is a key feature of bailment that distinguishes it from other type of relations such as agency.
J Shetty of SC in U Co. Bank vs Hem Chandra Sarkar 1990, observed that the distinguishing
feature between a bailment and an agency is that the bailee does not represent the bailor. He
merely exercises some rights of the bailor over the bailed property. The bailee cannot bind the
bailor by his acts. Thus, a banker who was holding the goods on behalf of its account holder for
the purpose of delivering them to his customers against payment, was only a bailee and not an
agent.
DUTIES OF BAILEE

(1) To take reasonable care of the goods: It is the duty of the bailee to take reasonable care
of the goods bailed to him/her by the bailor. According to section 151 of the Indian
Contract Act 1872 “the bailee is to take care of the goods as a man of ordinary prudence
would, under similar circumstances, take care of his own goods of the same bulk, quality
and value as the goods bailed”. Section 152 states that if, in spite of taking all reasonable
care, the goods are damaged or destroyed in any way, then the bailee is not liable for the
loss, destruction or the deterioration of the goods bailed.

Coldman vs. Hill

(1919) 1 K.B. 443

In this case some cattle belonging to A were given to B for feeding them grass against payment.
Without any negligence on the part of B the cattle were stolen. B did not inform the owner or the
police or make any effort to recover the cattle, because he thought it would be useless to do so. It
was held by the Court that B was liable for the loss to A.

 (2) Not to make any unauthorized use of goods (sec 154): The bailee is not to use the goods in
a manner, which is inconsistent with the terms of the contract. If he/she uses the goods in an
inconsistent manner then he/she is liable for loss of or any damage to the goods bailed.

Illustration

Ragini gave a piece of cloth to her tailor for stitching a kurti. After two days Ragini went to a
friends wedding and there she saw her tailor wearing her stitched kurti. This is not within the
terms of the contract of bailment therefore the tailor has to compensate Ragini for using the kurti
for her own personal purpose.

(3) Not to mix goods bailed with his/her own goods (sec 155-157): The bailee is to keep the
goods bailed to him/her separately from his/her own goods.

If the bailee mixes the goods with his/her goods-

(a) With the Bailor’s consent- in such a case both the bailor and the bailee shall have a
proportionate interest in the mixture produced due to the mixing of the goods.

(b) Without the bailor’s consent the goods can be separated: In this case the bailee is liable to
bear the expenses of separation as well as the damage caused to the bailed goods due to such a
mixture.
(c) Without the bailor’s consent and the goods cannot be separated: In this case the mixture
cannot be separated therefore the bailee is liable to compensate the bailor for the loss of goods.

(4) To return the goods (sec 160): The bailee is bound to return the bailed goods to the bailor
once the purpose for which the goods were bailed has been fulfilled.

Case Law 2

Shaw & Co. vs. Symmons & Sons

(1917) 1 K.B. 799

A delivered some books to B for binding. He pressed for their return, but B neglected to return
them although more than a reasonable time had elapsed. A fire accidentally broke out on B’s
premises, and the books were destroyed. Held, B was liable for the loss, although he was not
negligent, because of his failure to deliver the books within a reasonable time.

(5) To return any accretion to the goods (sec 163): If during the period of bailment any profit
or addition in value has accrued from the goods bailed then it is the duty of the bailee to return
such profit or increase in value to the bailor.

Illustration

Mr Sharma’s family was going for a vacation to Goa so they left their dog Sherly at their
neighbor Mr Hussain’s house. During that time Sherly gave birth to six puppies. It was Mr
Hussain’s duty to return Sherly and her puppies to Mr Sharma once his family came back from
Goa.

RIGHTS OF BAILEE

1. Right to necessary expenses (Section 158): The bailee is entitled to lawful charges for
providing his service. As per Section 158 says that where by conditions of the bailment, the
goods are to be kept or to be carried or to have work done upon them by the bailee for the bailor
and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary
expenses incurred by him for the purpose of bailment. Thus, a bailee is entitled to recover the
charges as agreed upon, or if there is no such agreement, the bailee is entitled to all lawful
expenses according to this section.

In Surya Investment Co vs STC AIR 1987, STC hired a storage tank from the plaintiff. On
account of a dispute, STC appointed a special officer to take charge of the tank, who delivered
the contents as per directions of STC. Thus, the plaintiff lost his possession and with it, his right
of lien. SC held that the plaintiff is entitled to the charges even if he loses his right of lien
because the bailor has enjoyed bailee's services.

2. Right to compensation (Section 164): As per section 164, the bailor is responsible to the
bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to
make the bailment, or to receive back the goods, or to give directions respecting them. This
means that if the bailor had no right to bail the goods and if still bails them, he will be
responsible for any loss that the bailee may incur because of this. 

3. Right of Lien (Section 170-171): In general, Lien means the right to keep the possession of
the property of a person until that person clear the debts. In case of bailment, the bailee has the
right to keep the possession of the property of the bailor until the bailor pays lawful charges to
the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it
gives the bailee the power to get paid for his services. 

Lien is of two kinds - Particular and General. 

Particular Lien: This means that the lien holder has a right to keep possession of only that
particular property for which the charges are owed. For example, A gives a horse and a bicycle
to B. A agrees to pay B charges for training the horse and no charges for keeping the bicycle.
Now, if A fails to pay charges for the horse, B is entitled to keep possession only of the horse
and not of the bicycle. He must return the bicycle. 

Section 170 gives this right to the bailee. It says that where the bailee has, in accordance with the
purpose of the bailment, rendered any service involving the exercise of labor or skill in respect of
the goods bailed, he has, in absense of a contract to the contrary, a right to retain such goods until
he receives due remuneration for the services he has rendered in respect of them.

General Lien - As opposed to Particular Lien, General Lien gives a right to the bailee to keep
the possession of any goods for any amount due in respect of any goods. Section 171 says that,
bankers, factors, wharfingers, attorneys of a High Court, and policy brokers may, in the absence
of a contract to the contrary, retain as a security for a general balance of account, any goods
bailed to them; but no other persons have a right to retain, as a security for such balance, goods
bailed to them, unless there is an express contract to that effect.
Thus, this right is only available to bankers, factors, wharfingers, attorneys of high court, and
policy brokers. However, this right can be given to the bailee by making an express contract
between the bailor and the bailee.
4. Right to Sue (Section 180-181): Section 180 enables a bailee to sue any person who has
wrongfully deprived him of the use or possession of the goods bailed or has done them any
injury. The bailee's rights and remedies against the wrong doer are same as those of the owner.
An action may be brought either by the bailor or the bailee.
Thus, in Umarani Sen vs Sudhir Kumar AIR 1984, a firm which had consigned the goods, of
which it was a bailee, with a carrier, was allowed to sue the carrier for loss of the goods.
Rights of finder of goods:
If a person finds something, he does not automatically become the owner of that thing. He, in
fact, becomes a special kind of a baliee in the sense that he has to keep the thing until the owner
is found. He should take care of the thing just like a bailee. Section 168 and 169 describe the
rights of such finder of goods.
Section 168 - The finder of goods has no right to sue the owner for compensation for trouble and
expense voluntarily incurred by him to preserve the goods and to find out the owner; but he may
retain the goods against the owner until he receives such compensation; and where the owner has
offered a specific reward for the return of goods lost, the finder may sue for such reward, and
may retain the goods until he receives it.
Thus, if the finder has incurred expenses in finding the owner and/or in maintaining the goods
voluntarily, he can retain the possession of the goods until the owner pays the expense to him,
though the finder cannot sue the owner for the expense. His only remedy is to keep the goods.
Further, if the owner has promised a reward for the return of the goods, the finder is entitled to
the rewards, and he can even sue the owner for the reward. He can retain the goods as well until
the reward is received.
As per Section 169, the finder of the goods can even sell the goods if they are of common
objects of sale, in the following conditions - 

1. the finder of goods was not able to find the owner after good faith efforts.
2. the owner is found but the owner refuses to pay lawful expenses and
1. either the goods are in danger of perishing or of losing greater part of the value
2. or the lawful charges of the finder amount to two third of the value of the goods.