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  1. 1. Contracts of Indemnity & Guarantee      Chapter VIII (sec. 124- 147) of Indian Contract Act 1872 covers these provisions 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’. (sec 124) Promisor >> indemnifier & the promisee >> indemnity holder Rights of indemnity holder when sued (sec 125) (all damages/all expenses-costs/all sums) Rights of indemnifier (the act is silent)
  2. 2. Guarantee (Sec. 126)  A contract of guarantee of a contract to perform the promise or discharge the liability of a third person in case of his default.  The person who gives – ‘surety’  Who defaults – ‘principal debtor’  To whom it is given – ‘creditor’  It may be oral or written; express or implied  Essential features; Concurrence/Primary & Secondary liability/Essentials of a Valid Contract (in case of principal debtor being a minor, the surety is regarded as principal debtor)
  3. 3. Contract of Indemnity v/s Contract of Guarantee CoI Two parties Liability is Primary Only one Contract Indemnifier not to Act on the request Of Indemnified Liability arises only >> In case of Contigency >> CoG >> Three Parties >> Liability is Secondary >> Total three contracts >> Surety to give guarantee upon debtor’s request Debt/duty already exists the performance of which has been guaranteed by the surety
  4. 4. A few features Nature of surety’s liability (coextensive/limitation)  Kinds of guarantee (specific / continuing)  Revocation of Continuing Guarantee (notice/death etc.)  Discharge of Surety (surety’s liability ends) (revocation/creditor’s conduct/invalidation) 
  5. 5. Bailment    Ch. IX (sec 148 - 181) of Indian Contracts Act 1872 ‘Bailment’ means ‘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 disposed off as per the directions given by the person delivering them. One who delivers called ‘Bailor’ and to whom delivered called ‘Bailee’. >>> (sec. 148) Duties of Bailee (take care of bailed goods/not to make unauthorized use/exclusive benefits to the bailee/not to mix the bailed goods with his own/to return the goods) Duties of Bailor (disclose known faults/bear extraordinary expenses of the bailee/receive back the goods/indemnify bailee in case of premature termination)
  6. 6. 1. Delivery of goods    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.
  7. 7. Types of Delivery   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.
  8. 8. EXAMPLE   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.
  9. 9. 2.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.
  10. 10. Example    In Ram Gulam v. Govt. of UP AIR 1950, plaintiffs ornaments were seized by police on the suspicion that they were stolen. The ornaments were later on stolen from the custody or police and the plaintiff sued the govt. for returning the ornaments. It was held that the goods were not given to the police under any contract and thus there was no bailment
  11. 11.   However, this decision was criticized and finally, 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.
  12. 12. 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.
  13. 13.   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.
  14. 14. Duties of a Bailor  A bailor may give his property to the bailee either without any consideration or reward or for a consideration or reward. In the former case, he is called a gratuitous bailor, while in the latter, a bailor for reward. The duties in both the cases are slightly different. Section 150 specifies the duties for both kinds of bailor. It says that the bailor is bound to disclose any faults in the goods bailed that the bailor is aware of, and which materially interfere with the use of them or which expose the bailee to extraordinary risk.
  15. 15. For example If a person bails his scooter to his friend and if the person knows that the brakes are loose, then he must tell this to the friend.  Otherwise, the bailor will be responsible for damages arising directly out of the faults to the bailee. But the bailor is not bound to tell the bailee about the fault if the bailor himself does not know about it.
  16. 16.   Section 150 imposes a bigger responsibility to the non-gratuitous bailor since he is making a profit out of the bailment. A non gratuitous bailor is responsible for any damage that happens to the bailee directly because of the fault of the goods irrespective of whether the bailor knew about it or not.
  17. 17. Example   In Hyman and Wife v. Nye & Sons 1881 , the plaintiff hired a carriage from the defendant. During the journey, a bolt in the under part of carriage broke, causing an accident in which the plaintiff was injured. The defendants were held liable even though they did not know about the condition of the bolt.
  18. 18. Duties/Responsibilities of a Bailee Duty to take reasonable care   In English law the duties of a gratuitous and non- gratuitous bailee are different. However, in Indian law, Section 151 treats all kinds of bailees the same with respect to the duty. It says that 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 of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care.
  19. 19. However, this does not mean that if the bailor is generally careless about his own goods, he can be careless about the bailed goods as well.  He must take care of the goods as any person of ordinary prudence would of his things. 
  20. 20.   In Blount vs War Office 1953, a house belonging to the plaintiff was demanded by the War Office. He was allowed to keep his certain articles in a room of the house, which he locked. The troops who occupied the house were not well controlled and broke into the room causing damage and theft of the articles. It was held that War office did not take care of the house as an owner would and held the War Office liable for the loss.
  21. 21. Bailee, when not liable for loss etc. for thing bailed    As per section 152, in absence of a special contract, the bailee is not responsible for loss, destruction, or deterioration of the thing bailed, if he has taken the amount of care as described in section 151. This means that if the bailee has taken as much care of the goods as any owner of ordinary prudence would take of his goods, then the bailee will not be liable for the loss, destruction, or deterioration of the goods.
  22. 22.   If the bailee has taken sufficient care in the security of the goods, then he will not be liable if they are stolen. However, negligence in security, for example leaving a bicycle unlocked on the street, would cause the bailee to be liable. In Join & Son vs Comeron 1922, the plaintiff stayed in a hotel and kept his belonging in his room, which were stolen. The hotel was held liable because they did not take care of its security as an owner would. .
  23. 23. Servant’s act  If loss is caused due to the servant of the bailee, the bailee would be liable if the servant's act is within the scope of his employment.
  24. 24. Special Contract   The extent of this responsibility can be changed by a contract between the bailor and the bailee. However, it is still debatable whether the responsibility can be reduce or it can be increased by a contract. Section 152 opens with, "In absence of special contract", which is interpreted by Punjab and Haryana HC, as the bailee can escape his responsibility by way of a contract with the bailor. However, in another case Gujarat HC held that the bank was liable for loss of bales of cotton kept in its custody irrespective of the clause that absolved the bank of all liability. This seems to be fair because no one can get a license to be negligent and a minimum standard of care is expected from everybody.
  25. 25. Duty not to make unauthorized use (Section 154)  if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.
  26. 26. Illustration  A lends horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care but the horse is injured. B is liable to compensate A for the injury to the horse.
  27. 27.  A hires a horse in Calcutta from B expressly to march to Benares. A rides with care but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make compensation to B. Thus, we can see that bailee is supposed to use the goods only as per the purpose of the bailment. If the bailee makes any unauthorized use of the goods, he will be held absolutely liable for any damages.
  28. 28. Duty not to mix (Section 155-157)   The bailee should maintain the separate identity of the bailor's goods. He should not mix his goods with bailor's good without bailor's consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailor for his loss.
  29. 29. Duty to return (Section 160)  It is the duty of the bailee to return or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished. .
  30. 30.  If the bailee keeps the goods after the expiry of the time for which they were bailed or after the purpose for which they were bailed has been accomplished, it will be at bailee's risk and he will be responsible for any loss or damage to the goods arising howsoever.
  31. 31. Example   In Shaw & Co vs Symmons & Sons 1971, the plaintiff gave certain books to the defendant to be bound. The defendant bound them but did not return them within reasonable time. Subsequently, the books were burnt in an accidental file. The defendants were held liable for the loss of books.
  32. 32. Duty to return increase (Section 163) As per Section 163, in absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase of profit which may have accrued from the goods bailed.  Illustration - 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 B.
  33. 33. Rights of a 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.
  34. 34. 1. 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.
  35. 35.   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.
  36. 36.   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.
  37. 37. Cntg. >>> Law relating to lien; Lien means right of a person to retain possession of some goods until the claims are satisfied. These could be of two types; i) Particular Lien & ii) General Lien (sec 170) (sec 171) Only those goods All the goods which Against which services are in possession Have been rendered (bankers/attorneys)
  38. 38.  RAVI found a purse in a computer education centre. He deposited the purse with proprietor of the centre so that the real owner can claim it. However, no one claimed the purse. Ravi wants the purse back. Can he succeed?
  39. 39.    Yes, Ravi will succeed. The proprietor of the computer education centre is in the position of a bailee. Section 160 provides that it is the duty of the bailee to return or deliver the goods bailed without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished. If the purpose for which goods bailed is not accomplished, the bailee is liable to return the goods to the bailor.
  40. 40. Pledge       Bailment of goods as security for payment of a debt for performance of a promise is called ‘pledge’; in this case The bailor is called >> pledger or pawnor The bailee is called >> pledgee or pawnee (sec 172) Pledge is bailment of goods as security, bailment is for a purpose of any kind In case of default, pawnee may sell the pledged goods, bailee may either retain the goods or sue for his charges In case of pledge, the pawnee cannot use the goods pledged, in case bailment bailee may do so if the contract so provides
  41. 41. Purpose  A pledge is made for a specific purpose, while bailment can be made for any purpose.
  42. 42. Property   In bailment, the bailee gets only the possession of goods bailed. The ownership remains with the bailor. In the case of pledge, the pledgee acquires a special property in the goods pledged whereby he gets possession coupled with the power of sale, on default.
  43. 43. Right of sale   Bailee can exercise a lien on the goods bailed. He has no right of sale. But in case of a pledge, the pledge can sell the goods after due notice to pledgor.
  44. 44. Right of pledgee     Right of retainer Right of retainer for subsequent advances Right to extraordinary expenses Right to sue the pledger or sell the goods on default of the pledger.
  45. 45. Contracts of Agency    An 'Agent' is a person employed to do any act or to represent another in dealings with third persons. The person who employs the agent and for whom such act is done,or who is so represented, is called the 'principal'. The relation between the agent and the principal is called 'Agency'.
  46. 46.   It is only when a person acts as a representative of the other in the creation,modification or termination of contractual obligations,between that order and third persons,that he is an agent. The essence of a contract of agency is the agent's representative capacity coupled with a power to affect the legal relations of the principal with third persons.
  47. 47. Contracts of agency are based on two important principles   Whatever a person can do personally shall also be allowed to be done through an agent except in case of contracts involving personal services such as painting, marriage, singing, etc. He who does an act through a duly authorised agent does it by himself i.e. the acts of the agent are considered the acts of the principal.
  48. 48. Contract of Agency Ch. X (sec. 182-238) of Indian Contract Act 1872  An Agent is a person employed to do any act for another, or to represent another in dealings with third person(s) --- [sec. 182] Person who represent called “Agent” Person who is represented called “Principal”  Essentials of Agency Relationship; 1. Agreement btn. Principal and the Agent (no consideration is necessary to create agency) & 2. Intention of the Agent to act on behalf of the Principal
  49. 49. A few features  Creation of an Agency (Express Agreement/Implied Agreement/Ratification)  Duties of Agent (to carry out work undertaken as per instructions/to carry out work with reasonable care,skill & dilligence/to render accounts to the Principal/not to deal on his own account/to pay sums received for the principal/to protect & preserve interest of the principal in case of his death or insolvency/not to use the information obtained in the course of agency against the principal/not to make secret/not to delegate authority