CONTRACT OF INDEMNITY

• The term ‘indemnity’ means security against hurt, loss, or damage.

• A contract of indemnity refers to a promise made by one person to make
good any loss or damage another has incurred or may incur by acting at
his request or for his benefit.
• A contract of Fire Insurance or Marine Insurance is a Contract of
Indemnity.
 Contract of indemnity is one of many aspects of Contingent
Contract.

 Contract of indemnity is one kind of Contingent Contract and

there could be other kinds of Contingent Contract that are not
contract of indemnity.
CONTRACT OF GUARANTEE
 A contract of guarantee is a contract to perform the promise or discharge
the liability, of a third person in case of his default.

 The person who gives the guarantee is Surety

 The person in respect of whose default the guarantee is given is called

the principal debtor

 The person to whom the guarantee is given is called a creditor

EXAMPLE
 S requests C to lend Rs 500 to P and guarantees that if P fails to pay the
amount, he will pay the amount.

 This is a contract of guarantee.

 S is the surety

 C is the creditor

 P is the principal debtor

 A guarantee may be either oral or written

 It may be express or implied and may even be inferred from the course of
conduct of the parties concerned.
CONTRACT OF INDEMNITY CONTRACT OF GUARANTEE

There are two parties to the contract, the indemnifier There are three parties to the contract the creditor, the
and the indemnified Principal debtor and surety

The liability of the indemnifier to the indemnified is The liability of the surety to the creditor is collateral or
primary in nature secondary, the primary liability lies with the principal
debtor

There is only one contract in case of indemnity There are three contracts
1. Principal debtor and Creditor
2. Creditor and Surety
3. Surety and Principal Debtor

It is not necessary for the indemnifier to act at the It is necessary that the surety should give the guarantee at
request of the indemnified the request of the debtor.

The liability of the indemnifier arises only on the It is necessary that the surety should give the guarantee at
happening of a contingency. the request of the debtor.
CONTRACT OF INDEMNITY CONTRACT OF GUARANTEE

An indemnifier cannot sue a third party for the loss in A surety on discharged the debt due by the principal
his own name debtor, steps into the shoes of the creditor. He can
proceed against the principal debtor in his own right
GUARANTEE IS NOT A CONTRACT OF UBERRIMARE FIDEI

 The contract of guarantee does not require the full disclosure of all material
facts by the principal debtor or creditor to the surety before the contract is
entered into.
CONSIDERATION TO THE SURETY
 Consideration received by the Principal Debtor is sufficient for the
surety, and it is not necessary that it must result in some benefit to
the surety himself.
 Anything done or promise made for the benefit of the principal
debtor may be sufficient consideration to the surety for giving the
guarantee.
DUTIES OF THE BAILOR
1. To Disclose Known Facts

 It is the first and foremost duty of the bailor to disclose the known faults of
the goods bailed to the bailee.
 If he does not make such disclosure, he is responsible for any damage
caused to the bailee.

Example

A lends a horse, which he knows is vicious to B, He does not disclose that the
horse is vicious. The horse runs away, and B is thrown and injured. A is
responsible to B for damage sustained.
2. To bear extraordinary expenses of bailment.

 The bailee is bound to bear ordinary and reasonable expenses of the

bailment, but for any extraordinary expenses, the bailor is responsible.

Example:

 A lends his horse to B, a friend, for two days.

 The feeding charges are to be paid by B.
 But if the horse meets with an accident, A will have to repay B for medical
expenses, incurred by B.
3. To indemnify bailee for loss in case of premature termination of gratuitous
bailment

 A gratuitous bailment can be terminated by the bailor at any time even though
the bailment was for a specified time or purpose.

 But in such a case, the loss accruing to the bailee from such premature
termination should not exceed the benefit he has derived from the bailment.

 If the loss exceeds the benefit, the bailor shall have to indemnify the bailee.
 Example

 A lends an old discarded bicycle to B gratuitously for three

months.
 B incurs 120 on its repairs.
 If A asks for the return of the bicycle after one month, he will
have to compensate B for expenses incurred by B in excess of
the benefit derived by him.
4. Receive Back the Goods

 It is the duty of the bailor to receive back the goods when the
bailee returns them after the expiry of the term of the bailment or
when the purpose for which bailment was created has been
accomplished.

 If the bailor refuses to receive back the goods, the bailee is

entitled to receive compensation from the bailor for the necessary
expenses of custody.
5. To Indemnify the Bailee.

 Where the title of the bailor to the goods is defective and

the bailee suffers as a consequence, the bailor is
responsible to the bailee for any loss which the bailee may
sustain by reason.
DUTIES OF BAILEE
1. To take reasonable care of the goods bailed

 In all cases of bailment, the bailee is bound to take as much care of the goods
bailed to him as a man of ordinary prudence would, under similar
circumstances, take of his own goods,

 If, in spite of the bailee's reasonable care, goods are damaged or destroyed in
any way, the bailee is not liable for the loss, destruction or deterioration of
the thing bailed
2. Not to make any unauthorized use of goods

 If the bailee uses the goods bailed in a manner inconsistent with the
terms of the contract, he shall be liable for any loss even though he is
not guilty of negligence, and even if the damage is the result of an
accident.

Example
Example

 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 accidentally falls and is injured.
 B is liable to make compensation to A for the injury caused to the
horse.
3. Not To Mix the Goods Bailed with his Own

 The bailee must not mix the goods of the bailor with his own goods but must
keep them separate

4. Not to set up an Adverse Title

The bailee must hold the goods on behalf of the bailor

He cannot deny the right of the bailor to bail the goods and receive them back.
5. To Return Accretion to the goods

The bailee is bound to deliver to the bailor, or according to his directions any
increase or profit which may have accrued from the goods bailed.

Example

1. A leaves a cow in the custody of b to be taken care of.

2. The cow has a calf
3. B is bound to deliver the calf as well as the cow to A.
6. To Return Goods

 It is the duty of the bailee to return or deliver according to the

bailor’s directions.

 If he fails, so he is responsible he is responsible to the bailor for

any loss.
CASE LAW: SHAW & CO. Vs SYMMONS & SONS

 A delivered some books to B to be bound

 A pressed for the return, but B neglected to return them although more
than reasonable time had elapsed.

 A fire broke out on B premises and the books were burnt.

 Held that B was liable for the loss, although he was not negligent, because
of his failure to deliver the books within a reasonable time.
RIGHTS OF THE BAILOR

1. Enforcement of Rights

The bailor can enforce by suit all the liabilities or duties of the bailee as his
rights.

2. Avoidance of Contract

The bailor can terminate the bailment if the bailee does, with regard to the
good bailed, any act which is inconsistent with the terms of the bailment.
3. Return Of Goods Lent Gratuitously

 When the goods are lent gratuitously, the bailor can demand the return of
the goods whenever he pleases even though he has lent them for a specified
time or purpose.

4. Compensation from a Wrong-Doer

 If a third person wrongfully deprives the bailee of the use or possession of

the goods bailed, or does them injury, the bailor or bailee may bring a suit
against the third person for such deprivation.
RIGHTS OF A BAILEE
1. Delivery of Goods to one of Several Joint Bailor of goods

 If several joint owners of goods bail them, the bailee may deliver them back,
according to the bailor’s directions.

2. Delivery of Goods to Bailor without Title

 If the bailor has no title to the goods, and the bailee in good faith, delivers
them back to, or according to the directions of, the bailor, the bailee is not
responsible to the owner in respect of such delivery.
3. Right To Apply to Court to stop Delivery

 If a person, other than the bailor, claims goods bailed, the bailee may apply
to the Court to stop the delivery of the goods to the bailor, and decide the
title of the goods.

4. Right to Action Against Trespassers

 If the third person wrongfully deprives the bailee of the use or procession
of the goods bailed to him, he has the right to bring an action against that
party.
5. Bailee Lien

 Where the lawful charges of the bailee in respect of the goods bailed are
not paid, he may retain the goods. The right of the bailee to retain the good
is known as particular lien.
MEANING OF LIEN
 Lien means the 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.

 There are two types of lien general and particular

GENERAL LIEN
 A general lien is a right of one person to retain any property or goods which
are in his possession belonging to another person until the promise or
liability is discharged.

 It is a right to retain the property belonging to another for a general

balance of the account.
PARTICULAR LIEN

 A particular lien is available only against the particular property

in respect of which the bailee has expended labour and skill.

 A bailee is entitled to a particular lien only.

MEANING OF PLEDGE
 The bailment of goods as security for payment of a debt or
performance of a promise is called a pledge’.

 A pledge is a bailment for security. It is a special kind of bailment.

 The bailor is, in this case, called the 'pledger' or 'pawnor' and the
bailee is called the pledgee, or 'pawnee
Example:
If A borrows 200 from B and keeps his watch as security for
payment of the debt,
The bailment of the watch is a pledge.
Any kind of movable property, i.e., goods, documents, or
valuables, may be pledged.
DIFFERENCE BETWEEN PLEDGE AND BAILMENT
PLEDGE BAILMENT
Pledge is the bailment of goods as a Bailment, on the other hand, is for a
security for the performance of a specific purpose of any kind.
promise, i.e., the payment of a debt or
performance of a promise

In case of default by the pawnor to repay The bailee may either retain the goods or
the debt, the pawnee may, after giving sue for his charges.
notice to the pawnor, sell the goods
pledged with him

In case of pledge, the pawnee has no In case of bailment, the bailee may do so if
right to use the goods pledged the terms of bailment so provide.
CONTRACT OF AGENCY
 A person who is competent to make a contract may do so
(i) either by himself
(ii) through another person

 When he makes contracts through another person, he is said to be

making a contract through an agent.

 The contract which creates the relationship between the principal and
agent is known as ‘agency.’

 Agency may be created by an express or implied agreement.

PARTIES TO THE CONTRACT

1. AGENT
According to Section 182 of the Contract Act defines an ‘agent’ as “a person employed to do

any act for another or represent the other in dealings with third parties.

2. PRINCIPAL

The person for whom such an act is done, or who is so represented, is called the principal.
WHO CAN APPOINT AN 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.

 However, there is nothing in the Act that prohibits the Act which
prohibits the guardian of a minor from appointing an agent for
him. ( Madanlal Dhariwal Vs Bherulal)
MINORS AS AGENT

 A minor can act as an agent

 But he will not be liable to his principal for his acts.