Unit-III

Special Contract
• Contract of indemnity
• Contract of guarantee
• Contract of bailment
• Pledge
• Contract of agency
 Contracts of Indemnity
• "A Contract whereby 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,
• The person who promises to save the other is
called the Indemnitor or Indemnifier and the
person who is compensated is
the Indemnitee, Indemnified or
the indemnity-holder.
 Essential elements of Indemnity
• Loss to one party
• Indemnity by the promisor
– (loss has not happened)
• Reason for loss
 Right Of The Indemnity Holder
• Right to recover damages
• Right to recover costs
• Right to recover sums paid under compromise
• Right to sue for specific performance
Contract of guarantee
 Contract of guarantee
• A "contract of guarantee " is a contract to
perform the promise, or discharge the liability,
of a third person in case of his default.
 Contract of guarantee
• The person who gives the guarantee is called
the " surety";
• the person in respect of whose default the
guarantee is given is called the " principal
debtor
• the person to whom the guarantee is given is
called the " creditor ". A guarantee may be
either oral or written
Essentials of contract of guarantee
1. Tripartite agreement: there are three parties
namely: principal debtor, creditor and surety.
• three separate contracts are made among them
and consent of all the three parties is necessary.
a. the principal debtor and creditor,
b. the creditor and surety, and
c. the surety and principal debtor,
2. Essentials of valid contract
3. Written form Not Necessary
 Difference Between Indemnity and
Guarantee
Basis for comparison Indemnity Guarantee

PARTIES TWO THREE

DEGREE OF LIABILITY PRIMARY SECONDARY

PURPOSE TO COMPENSATE FOR THE TO GIVE ASSURANCETO

LOSS THE PROMISEE

MATURITY OF LIABILITY WHEN THE CONTINGENCY LIABILITY ALREADY EXISTS

OCCURS
• KINDS OF GUARANTEE
– SPECIFIC GUARANTEE
– CONTINUING GUARANTEE
• Revocation of a continuing guarantee
– By notice
– By death of surety
– By other modes
» By novation
» By release
 Rights of Surety
• Rights against Principal debtor.
– Right to give Notice -Right of Indemnity
– Rights of Sub-rogation -Right to get Securities
– Right to ask for Relief
• Rights against Creditor.
– Right to get Securities - Rights of Sub-rogation
– Right to advice to Sue Principal Debtor
– Right to ask for Set-off
• Rights against Co-Sureties.
– Right to ask for Contribution
– Right to claim Share in Securities
 Contract 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 otherwise disposed
of according to the directions of the person
delivering them.
• The person delivering the goods is called the
bailor, the person to whom they are delivered is
called the bailee and the transaction is called the
bailment.
 Bailment means act of delivering goods for a specified
purpose on trust. The goods are to be returned after
the purpose is over.

 In bailment, possession of goods is transferred, but

property i.e. ownership is not transferred.

 Bailment can be only of ‘goods’. As per section 2(7) of

Sale of Goods Act, ‘goods’ means every kind of
movable property other than money and actionable
claim. Thus, keeping money in bank account is not
‘bailment’.
 ESSENTIALS AND LEGAL RULES AS TO
BAILMENT
 Contract: A bailment is usually created by agreement b/w the bailor &
bailee.
 Delivery of Goods: In bailment, the possession of goods must be
delivered by the bailor to the bailee.
 No Transfer of Ownership: In bailment, possession is transferred from
one person to another but ownership of goods remains with the bailor.
 Delivery of Goods for Some Purpose: The delivery of goods must be for
some specific performance.
 Return of Specific Goods: Goods are delivered to the bailee with the
condition that the same goods will be returned to the bailor after the
accomplishment of purpose.
 Movable Goods: In bailment, the goods bailed must be movable.
 Deposit of Money Into Bank: Deposit of money into bank by a customer is
not a contract of bailment because the money deposited is not returned in
identical coins and notes deposits.
• RIGHTS OF BAILOR:
 Right of Termination
 Right to Demand Return of Goods
 Right to file a suit against a wrong delivery.
 Enforcement of Rights

• DUTIES OF BAILOR:
 Duty to disclose known defects
 Duty to Bear Extraordinary expenses
 Bear Risk for Loss
 Duty to indemnify bailee
 Duty to receive back the goods
• RIGHTS OF BAILEE:

 Right Against third Party: If a third person wrongfully

deprive bailee to use the goods or cause any injury,
then bailee is entitled to such remedies which are
available to real owner.
 Right of Particular Lien: When the bailee has rendered
some services or skills on the good he had right of
particular lien unless he is paid.
 Right to Claim Compensation in Case of faulty
Goods.
 Right to claim necessary expenses.
 Right to return the goods to any of the joint bailor.
• DUTIES OF BAILEE:

Duty of Reasonable care.

Duty not to make unauthorized use of goods.
Duty not to mix bailor’s goods with his own.
Duty to return any profit out.
• PLEDGE:
Bailment of goods as a security for payment of debts or performance of
promise is called pledge. The bailor is called pledgor or pawnor and the
bailee is called Pawnee.
• ESSENTIALS OF PLEDGE:
 Delivery of Goods: The delivery of goods to pledgee is necessary to
constitute a pledge.
 Delivery of goods should be by way of security. The security being for the
payment of debt or the performance of a promise.
 Goods must be movable. An implied condition to return the goods.
• RIGHTS AND DUTIES OF PAWNEE
 Right of retainer
 Right of particular lien
 Right to extraordinary expenses
 Right in case of default of the pawnor
• RIGHTS AND DUTIES OF PAWNOR
 Right of redemption
 Right to take back the goods.
 CONTRACT OF AGENCY
• By contract of agency a person employs another
person to do any act for him or to represent him
in dealing with third persons so as to bind himself
by the acts of such another person.
• Agent- is a person employed to do any act for
another or to represent another in dealing with
third persons
• Principal-The person for whom act is done by an
agent
 Creation of agency
1. By express agreement

2. By implied agreement
Agency by ESTOPPLE.
Agency by Holding out.
Agency by necessity.

• 3. By ratification
 Classification of agents
• Special agent
• General agent
• Universal agent(unlimited)
• Merchantile agents *Non-merchantile
– Auctioneer -insurance agents
– Factor
– Commission agent
– Del credere agent
 Sub agent and Substituted Agents
• Sub agent is employed by, and acting under the
control of the original agent in the business of the
agency
• Substituted agent Where an agent, holding an
expressed or implied authority to name another
person has named another person, such person is
agent of the principal for such part of the business of
the agency as is entrusted to him.
 DUTIES OF AGENT
1. To carry out the work undertaken according to the directions given
by the principal.

2. To carry out the work with reasonable care, skill and diligence.

3. To communicate with the principal in the case of difficulty.

4. To pay sums received for the principal.

5. To protect and preserve the interests of the principal in the case of his
death or insolvency.
6. Not to make secret profit from agency .

7. Not to set up an adverse title.

8. Not to use information obtained in the course of the agency against

the principal.
 Rights of agent
1. Right of retainer.

2. Right to receive remuneration.

3. Right of lien.

4. Right of indemnification.

5. Right of compensation.
 Duties of principal
1. To indemnify the agent against the consequences of all lawful
acts

2. To indemnify the agent against the consequences of acts done in

good faith

3. To indemnify the agent for injury caused by principal’s neglect.

4. To pay the agent the commission other remuneration agreed.

 Rights of principal
1)To recover damages.

2)To obtain an account of secret profits and

recover them and resist a claim for
remuneration.
3) To resist agent’s claim for indemnity against
liability incurred.