Contracts of Indemnity and Guarantee

A contract of indemnity is one whereby a person promises to save the other from loss caused to
him by the conduct of the promisor himself or of any third person.For example,a shareholder
executes an indemnity bond favouring the company thereby agreeing to indemnify the company
for any loss caused as a consequence of his own act.The person who gives the indemnity is
called the 'indemnifier' and the person for whose protection it is given is called the 'indemnity-
holder' or 'indemnified'. A contract of indemnity is restricted to cover the loss caused by the
promisor himself or by a third person.The loss must be caused by some human agency.Loss
arising from accidents like fire or perils of the sea are not covered by a contract of indemnity.
A contract of 'guarantee' is a contract,whether oral or written,to perform the promise,or discharge
the liability,of a third person in case of his default. A contract of guarantee involves three
persons,viz. a person who gives the guarantee is called the 'surety'; the person in respect of
whose default the guarantee is given called the 'principal debtor'; and the person to whom the
guarantee is given is called the 'creditor'. A contract of guarantee is a conditional promise by the
surety that if the principal debtor defaults he shall be liable to the creditor.
Difference between Indemnity and Guarantee:-

● In a contract of indemnity there are two parties i.e. indemnifier and indemnified. A
contract of guarantee involves three parties i.e. creditor, principal debtor and surety.
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● An indemnity is for reimbursement of a loss, while a guarantee is for security of the
creditor.
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● In a contract of indemnity the liability of the indemnifier is primary and arises when the
contingent event occurs. In case of contract of guarantee the liability of surety is
secondary and arises when the principal debtor defaults.
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● The indemnifier after performing his part of the promise has no rights against the third
party and he can sue the third party only if there is an assignment in his favour. Whereas
in a contract of guarantee, the surety steps into the shoes of the creditor on discharge of
his liability, and may sue the principal debtor.
Contracts of Bailment and Pledge
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 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 the goods are delivered is called the 'bailee'. The examples of a contract
of bailment are:- delivering a watch or radio for repair; leaving a car or scooter at a parking
stand; leaving luggage in a cloak room; delivering gold to a goldsmith for making ornaments;
leaving garments with a dry cleaner,etc. The essence of bailment is the transfer of possession.
The ownership remains with the owner. There cannot be a bailment of immovable property.
A 'pledge' is a bailment of goods wherein the goods are delivered as a security for payment of a
debt or performance of a promise.The bailor is called the 'pledgor' or 'pawnor' and the bailee is
called the 'pledgee' or 'pawnee'. Thus, pledge is a special kind of bailment. Pledge can be made
only of movable properties. In order to make the pledge legally valid it is essential that the
pledgor has the legal right or title to retain the goods.
Difference between Bailment and Pledge:-

● Purpose:- A pledge is made for a specific purpose, while bailment can be made for any
purpose.
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● 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.
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● 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 pawner.
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'. 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.
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.
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● 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.