Contract of Indemnity - Section 124 & 125 Contract of Guarantee - Section 126-147

Contract of Bailment - Section 148-171 Contract of Pledge – Section 172-181

Contract of Agency -Section 182-238

CONTRACT OF INDEMNITY - SECTION 124 & 125

124 - 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.”

 There must be a loss incurred due to the intervention of human agency

 a legal contract between two persons whereby one party commits to indemnify,

i.e. to compensate or reimburse, the loss incurred to the other party, by the conduct of the
party, who is making the promise or by the conduct of the third party.

 Person who promises to save the other party from loss is called as indemnifier
 Person who is promised to be saved against loss is called as indemnity holder.
 The contract of indemnity is a form of contingent contract
 The object of contract of Indemnity should not be unlawful.
 Contract of Fire insurance and Contract of Marine Insurance are examples of contract of
Indemnity but Contract of Life Insurance is not a contract of indemnity

125 - Rights of indemnity-holder when sued

The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to
recover from the promisor:-

case filed against indemnity holder what rights does he have

suffer: -
 damages - they may be compelled to pay

all damages which he may be compelled to pay in any suit in respect of any matter
to which the promise to indemnify applies;
Any kind of damages which the indemnity holder is bound to pay in any suit
concerned with any issue to which the contract of indemnity applies.
 or costs – suits they may have to pay
 all costs which he may be compelled to pay in any such suit if, in bringing or
defending it, he did not contravene the orders of the promisor, and acted as it would
have been prudent for him to act in the absence of any contract of indemnity, or if
the promisor authorized him to bring or defend the suit;
Any expenses which the indemnity holder is bound to pay, so as to bring or defend
the suit.

 or sums – they pay as compromise outside the courts, as a matter of settlement

all sums which he may have paid under the terms of any compromise of any such
suit, if the compromise was not contrary to the orders of the promisor, and was one
which it would have been prudent for the promisee to make in the absence of any
contract of indemnity, or if the promisor authorized him to compromise the suit.
All the amount which the indemnity holder has paid, in connection to the settlement
of the suit.

they can indemnify

rising out of such a contract.

126 – Right of person as to acts done for him without his authority. Effect of
ratification — Where acts are done by one person on behalf of another, but without his
knowledge or authority, he may elect to ratify or to disown such acts. If he ratify them,
the same effects will follow as if they had been performed by his authority.

The following conditions are necessary before another can ratify an act of a person namely:-
 An act must have been done by one person on behalf the other person (the supposed
principal) and not on account of the agent himself.
 The act must not be void act. There is no question of ratification of a void contract.
 The act must have been done without the knowledge or authority of that other person
who may elect to ratify or to disown much act. If he ratifies it the same effects will
follow as if it had been performed by his authority. Such ratification may be express
or implied from the conduct.
 What is essential under section 196 is an effective ratification. Effective ratification
necessarily involves knowledge of all the material facts on the part of him who
ratifies.
127 – Ratification may be expressed or implied — Ratification may be expressed or may
be implied in the conduct of the person on whose behalf the acts are done.

128 – Knowledge requisite for valid ratification — No valid ratification can be made by a
person whose knowledge of the facts of the case is materially defective.

No valid ratification can be made by a person whose knowledge of the facts of the
case is materially defective.
In order to binding adoption of acts a priori unauthorised these conditions must exist-

 the act must have been done for and in the name of the supposed principal, and
 there must be full knowledge of what these acts were or such as unqualified
adoption that the inference may properly be drawn that the principal intended
to take upon himself the responsibility for such acts whatever they are.

129 – Effect of ratifying unauthorized act forming part of a transaction — A person

ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of
which such act formed a part.

Thus if a person ratifies an act which is a part of a transaction it will be deemed as if the
whole transaction has been ratified.
Thus a person cannot choose to ratify part of a transaction and repudiate the terminating
part.

130 – Ratification of unauthorised act cannot injure third person — An act done by one
person on behalf of another, without such other person’s authority, which, if done with
authority would have the effect of subjecting a third person to damages, or of terminating
any right or interest of a third person, cannot, by ratification, be made to have such effect.
Revocation of authority 201 – 210

131 – Termination of agency — An agency is terminated by the principal revoking his

authority, or by the agent renouncing the business of the agency; or by the business of the
agency being completed; or by either the principal or agent dying or becoming of
unsound mind; or by the principal being adjudicated an insolvent under the provisions of
any Act for the time being in force for the relief of insolvent debtors.
This section provides for the following modes of revocation-

Termination by Act of the parties:

 Agreement,
 Revocation by the principal,
 Renunciation by the agent.

By operation of Law:
 Completion of the business,
 Expiry of time,
 Death of principal or agent,
 Insanity of principal or agent,
 Insolvency of the principal,
 Destruction of the subject-matter,
 Dissolution of a company,
 Principal or agent becomes alien enemy.

132 – Termination of agency, where agent has an interest in subject-matter — Where

the agent has himself an interest in the property which forms the subject-matter of the
agency, the agency cannot, in the absence of an express contract, be terminated to the
prejudice of such interest.

133 – When principal may revoke agent’s authority — The principal may, save as is
otherwise provided by the last preceding section, revoke the authority given to his agent
at any time before the authority has been exercised so as to bind the principal.

134 – Revocation where authority has been partly exercised — The principal cannot
revoke the authority given to his agent after the authority has been partly exercised, so far
as regards such acts and obligations as arise from acts already done in the agency.

135 – Compensation for revocation by principal, or renunciation by agent — Where

there is an express or implied contract that the agency should be continued for any period
of time, the principal must make compensation to the agent, or the agent to the principal,
as the case may be, for any previous revocation or renunciation of the agency without
sufficient cause.