Specific Contracts

 General Principles of Contract - (Sections 1 to 75)

 Specific Contracts - (Sections 124 to 238)
Specific Contracts - (Sections 124 to 238)
 Sections 76 to 123 have been repealed and are now embodied in “Sale of Goods Act,1930”
 Sections 239 to 266 have been repealed and are now embodied in the “Indian Partnership Act”
 Chapter VIII-Sections 124 to 147 Indemnity and Guarantee
 Chapter IX-Sections 148 to 181 Bailment and Pledge
 Chapter X- Sections 182 to 238 Agency
Indemnity and Guarantee
Contract of Indemnity - Secs 124 and 125
Section-124: “Contract of Indemnity” defined: 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”.
Ex: A contracts to Indemnify B against the consequences of any proceedings which C may take against B
in respect of a certain sum of Rs200. This is a contract of Indemnity.
The person who promises to make good the loss is called the “Indemnifier” (Promisor)
 The person whose loss is to be made good is called the “Indemnified” or “Indemnity Holder” (Promisee)
 Ex: A and B go into a shop, B says “Let him (A) have the goods, I will see you paid”, to the shopkeeper.
The contract is one of Indemnity.
 A contract of indemnity is a class of contingent contract.
Nature of contract of Indemnity
The definition covers indemnity for loss caused by human agency only. It does not deal with those
classes of cases where the indemnity arises from loss caused by events or accidents which do not or may
not depend upon the conduct of the promisor or any other person, or by reason of liability incurred by
something done by the promisee at the request of the promisor.
Gajanan Moreshwar V Moreshwar Madan, AIR1942, Bom303
Cases where loss arises from an act done at the request of the promisor are also outside the scope of
Section 124.
Such cases are properly covered under Section 223 of the Act, which provides for indemnity between
agent and his principal.
Situations like those in Admson V Jarvis(1827)4
Where cattle were sold by the plaintiff auctioneer under the directions of the defendant not being the
owner of the livestock are outside the scope of Section 124.
The expression “Contract of Indemnity” has been used in section 124 in a narrow sense. The general law
relating to contracts of indemnity is much wider. For example, a contract of fire insurance is a contract
of indemnity though not covered by section 124.
State of Orissa V United India Insurance Co.Ltd., AIR 1997 SC2671
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Scope of contract of Indemnity:
Nature of indemnity is not restricted to the narrow sense of the expression as defined in section 124. It
is discussed in a wider sense wherein the term “indemnity” is said to mean recompense for any loss or
liability which a person has incurred. Such a duty may arise from an agreement or otherwise i.e., besides
a contract it may result from “the relation of the parties” or by “statute”.
For example a right of indemnity may arise between a principal and agent, an employer and employee
or in favour of a trustee under a trust fund.
Insurance indemnity: Almost all insurances other than life and personal accident insurance are contracts
of indemnity. The insurer’s promise to indemnify is an absolute one. A suit can be filed immediately
upon failure of performance, irrespective of actual loss. If the indemnity holder incurred liability and
that liability was absolute, he would be entitled call upon the indemnifier to save him from that liability
by paying it off.
New India Assurance Co Ltd V State Trading Corporation of India., AIR 2007
Vehicle insured for Rs1,00,000, it was stolen and became a total loss, the insurer not permitted to say
that his liability was only up to market value of the vehicle.
Vishan Narain V Oriental Insurance Co. Ltd, AIR2002 Del336
Other illustrations are service bonds executed by the employees to serve the master for a particular
period or persons claiming payment of money or delivery of goods on indemnity bonds having lost the
original documents of title.
Rights of Indemnity-holder: Sec 125
1. All damages which he may be compelled to pay in any suit in respect of any matter to which the
promise of indemnity applies.
2. All costs which he may be compelled to pay in such suits if, in bringing or defending it.
3. All sums which he may have paid under the terms of any compromise of any such suit.
Commencement of liability of indemnifier:
When does the indemnifier become liable to pay or when is the indemnity-holder entitled to recover his
indemnity?
The original English rule was that indemnity was payable only after the indemnity-holder had suffered
actual loss by paying off the claim. The maxim of law was: “you must be damnified before you can claim
to be indemnified”.
But the law is now different. The process of transaction is well- explained in Gajanan Moreshwar
Parelkar V Moreshwar Madan Mantri, AIR1942 Bom 302: It is true that under the English common law
no action could be maintained until the actual loss had been incurred. It was very soon realized that an
indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had
actually paid the loss. If a suit was filed against him he had actually to wait till a judgment was
pronounced and it was only after he had satisfied the judgment that he could sue on his indemnity. It is
clear that this might under certain circumstances throw an intolerable burden upon the indemnity-
holder. He might not be in a position to satisfy the judgment and yet he could not avail himself of his
indemnity till he had done so. Therefore, the court of equity held that if his liability had become
absolute then he was entitled either to get the indemnifier to pay off the claim or to pay into court
sufficient money which would constitute a fund for paying off the claim whenever it was made.