LEGAL ASPECTS OF BUSINESS
MINOR -2
Ques.1
Ans.1
Indemnity - The literal meaning of Indemnity is protection against loss or enacting to compensate
or protect somebody from the loss or make good to the loss. 
Guarantee - The basic meaning of guarantee is an undertaking to answer for the payment or
performance, so, contract of guarantee is a contract to perform the promise or discharge the
liability of a third person in case of his default. It is comprised of the simultaneousness of the
principal debtor, the creditor, and the surety.
S.No. Points of difference Contract of Indemnity
1. Parties A contract of indemnity requires
the concurrence of only two
parties ie., the indemnifier and the
indemnity holder.
2. Object The object of a contract of
indemnity is to make good the
loss or to compensate the party
that has suffered some loss.
3. Nature of Contract
The contract of indemnity is for
the re-imbursement of the loss.
The indemnifier promises to save
the indemnity holder from a
contingent risk, ie, when he
suffers some loss. Contingent but
is subsisting.
4. Nature of Liability
The promisor or the indemnifier
undertakes an independent
liability. In other words, the
liability of the indemnifier is
primary
5. Independence of the
- Preetika Chopra
MBA (BS)
2000211MBS
Contract of Guarantee
A contract of guarantee is a
tripartite agreement which
contemplates three persons
ie., the principal debtor, the
creditor and the surety.
The object of a contract of
guarantee is to enable a
person to obtain a loan or
goods on credit or even
employment.
The contract of guarantee is
for the security of the
creditor. The surety
undertakes to discharge of
liability of the principal
debtor which is not in
contract of guarantee, there
is an existing debt or duty,
the performance of which is
guaranteed by the surety.
The promisor or the surety
undertakes to be liable when
the principal debtor fails to
pay ie., the liability of the
surety is collateral.
 promisor Indemnifier acts independently
without any request of the debtor
or the third party.
6. Right to sue third
parties The indemnifier cannot sue third
parties in his own name unless
there be an assignment in
indemnifier’s favour. He may sue
in the name of the indemnified.
The surety gives guarantee
only at the request of the
principal debtor.
If the principal debtor fails
to pay, the surety, after he
has discharged the debt, can
proceed against the
principal debtor in his own
right.

Ques.2
Ans.2 Bailment is a situation where the owner of goods entrusts their possession into the care of
another person for some purpose briefly. Under section 148 bailment is defined as:
‘A bailment is the delivery of goods by one person to another for some purpose, upon a contract
that they shall, when the purpose if accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them.’
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:
In bailment, there must be delivery of goods by one person to another. However, the word,
‘delivery’ is very wide. It may be actual or constructive.
It should be noted that in bailment, only possession of the goods passes from one person to
another. Possession means control of goods to the exclusion of others. Mere custody of goods as
against possession is not sufficient. For example, a master while giving his goods to his servant
retains the possession with him and parts only with the custody of the goods.
Thus, to create bailment, there must be delivery of goods.
Example- A lady handed over her old jewellery to a jeweler for melting and making it into a new
one. Every evening, she used to collect the half-made jewellery and put in into a box kept in the
shop of the jeweler. She used to keep the key of the box with her.
One day the box was stolen. Held, the jeweler was not liable as the jeweler had re-delivered the
jewellery to the lady and as such, the jeweler could not anymore be regarded as a bailee. The
lady must bear the loss herself. [Kaliaperumal Pillai v. Visolakshmi]
3. The goods are delivered for certain purpose:
The purpose may vary from safe-keeping or safe custody to repairing or changing the form of the
goods.
Examples:
(1) A leaves his suit-case with a Railway Cloak Room for safe custody.
(2) A gives his watch for repair to a watch-maker.
(3) A gives a piece of cloth to a tailor for stitching it into a shirt.
4. The same goods must be returned:
For a transaction of bailment, it is necessary that the same goods must be returned.
Where money is deposited in a savings bank account or any other account, it is not a transaction
of bailment because the bank is not going to return the same currency notes but will return only
an equivalent amount. However, where money or valuables are kept in safe custody, it will
amount to a transaction of bailment as these will be returned in specie.
It should be noted that return of goods in specie does not mean that their form cannot change.
For example, old ornaments can be changed into new one. A piece of cloth can be stitched into a
shirt.

Ques.3
Ans.3 Contract of sale is a generic term and includes both sale and an agreement to sell under
section 4(1). According to section 4(3). Where under a contract of sale the property in the goods
is transferred from the seller to the buyer, the contract is called a sale but where the transfer of
the property in the goods is to take place at a future time or subject to some condition thereafter
to be fulfilled, the contract is called an agreement to sell. The sale is an executed or absolute
contract whereas an agreement to sell is an executory contract and implies a conditional sale.

1. Under Sale, ownership passes immediately at the time when the contract is made whereas
under Agreement to Sell, passing of ownership is postponed i.e the transfer takes place at a
future time or transfer is subject to some conditions.
2. In case of sale, the buyer becomes the owner immediately whereas, in case of an agreement to
sell, the seller remains the owner until that agreement is not converted into a sale.
3. Sale is executed contact i.e when both the parties perform their part whereas agreement
to sell is an executory contract i.e which is to perform in the future.
4.Sale gives right in rem i.e against the whole world whereas in agreement to sell it gives right in
personal i.e between the parties only.
5. Sale is always of existing property whereas agreement to sell can be of existing property or
future property.
6. In sale, if after the contract of sale any loss is caused to the goods then the risk is to be borne
by the buyer. (section 26) whereas in case of an agreement to sell, the seller is still the owner of
goods so if there is any loss then that loss is to be borne by the seller only. (section26)
7.In case of sale, if the buyer refuses to pay the money, then the unpaid seller may have the right
to recover money u/s 46 whereas in case of an agreement to sell, if the buyer refuses to accept
and pay then the seller may sue him for damages for non - acceptance.

Rights of the Buyer:

1. To have delivery of the goods as per contract. (Section 31 & 32)
2. To reject the goods when they are not of the description, quality or quantity as specified in the
contract (Section 37).
3. To repudiate the contract when goods are delivered in installments without any agreement to
that effects [ Section 38 (1)]
4. To be informed by the seller, when the goods are to be sent by sea route, so that he may
arrange for their insurance [Section 39 (30)]
5. To have a reasonable opportunity to examine the goods for ascertaining whether they are in
conformity with the contract. (Section 41)
6. To sue the seller for recovery of the price, if already paid, when the seller fails to deliver the
goods.
7. To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the gods to
the buyer (Section 57)
8. To sue the seller for specific performance
9. To sue the seller for damages for breach of a warranty or for breach of a condition treated as
breach of a warranty (Section 59)
10. To sue the seller the damages for anticipatory breach of contract (Section 60)
11. To sue the seller for interest where there is a breach of contract on the part of the seller and
price has to be refunded to the buyer (Section 61)
Duties of the Buyer:
1. To accept the delivery of goods, when the seller is willing to make the delivery as per the
contract (Section. 31)
2. To pay the price in exchange for possession of the goods
3. To apply for delivery of the goods. (Section. 35)
4. To demand delivery of the goods at a reasonable hour [Section 36 (4)]
5. To accept delivery of the goods in installments and pay for them, in accordance with the
contract. [(Section 38 (2)]
6. To bear the risk of deterioration in the course of transit, when the goods are to be delivered at
a place other than where they are sold ( Section 40)
7. To inform the seller in case the buyer refuses to accept or rejects the goods ( Section 43)
8. To take the delivery of the goods within a reasonable time after the seller tenders the delivery
(Section. 44)
9. To pay the price, where the property in the goods are passed to the buyer, in accordance with
the terms of the contract ( Section55)
10. To pay damages for non-acceptance of goods ( Section 56)

Rights of the Seller:

1. To reserve the right of disposal of the goods until certain conditions are fulfilled. ( Section 25
(1)]
2. To assume that the buyer has accepted the goods , where the buyer
3. To deliver the goods only when applied for by the buyer ( Section 35)
A) Conveys his acceptance;
B) Does an act adopting the sale; or
C) Retains the goods without giving a notice of rejection, beyond 
specified date (or reasonable time), in a sale on approval. (Section 24)
4. To make delivery of the goods in installments, when so agreed (Section 39 (1)]
5. To exercise lien and retain possession of the goods, until payment of the price ( Section 47 (1)]
6. To stop the goods in transit and resume possession of the goods, until payment of the price
( Section 49 (2) and 50]
7. To resell the goods under certain circumstances ( Section54)
8. To withhold delivery of the goods when the property in the goods has not passed to the buyer
(Section 46 (2)]
9. To sue the buyer for price when the property in the goods has passed to the buyer or when the
price is payment on a certain day, in terms of the contract, and the buyer fails to make the
payment (Section 55)

Duties of the Seller:

1. To make the arrangement for transfer of property in the goods to the buyer.
2. To ascertain and appropriate the goods to the contract of sale
3. To pass an absolute and effective title to the goods, to the buyer.
4. To deliver the goods in accordance with the terms of the contract ( Section 31)
5. To ensure that the goods supplied conform to the implied / express conditions and warranties.
6. To put the goods in a deliverable state and to deliver the goods as and when applied for by the
buyer ( Section 35)
7. To deliver the goods within the time specified in the contract or within a reasonable time and a
reasonable hour. [ Section 36 (2) and (4)]
8. To bear all expenses of and incidental to making a delivery ( i.e. up to the stage of putting the
goods into a deliverable sate [Section 36 (5)]
9. To deliver the goods in the agreed quantity. (Section 37 (1)]
10. To deliver the goods in installments only when so desired by the buyer. [Sec 38 (1)]
11. To arrange for insurance of the goods while they are in transmission or custody of the carrier.
[Section39 (2)]
12. To arrange for insurance of the goods while they are in transmission or custody of the carrier.
[Section39 (2)]