Contract Act – 1872

Contract of Indemnity

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 Contract of Indemnity
A contract by which one party promises to save the other
party 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 make good the loss is
called the Indemnifier (Promisor). The person
whose loss is to be made good is called the
indemnity holder or Indemnified (Promisee).
 A contract of indemnity is made to protect the
promisee against anticipated loss. It depends upon
happening of loss. Contract of insurance is an
example of indemnity.

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 Contract of Indemnity: Example
 A parked his car at car stand. He lost his
token given by B, Car Stand Manager. To get
the car A promised to compensate B against
the loss B may suffer if any other person
claims the car from B.

 Insurance of safe voyage of ship from one

port to another is also an example of
Insurance.

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 Contract of Indemnity: Essentials
 Must contain all the essentials of a valid contract.
 It is a contract between two parties.
 One person promises to safe the other from any
loss which he may suffer.
 The loss may be caused by the conduct of promisor
himself or any other person.
 The contract may be expressed or implied.

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 Contract of Indemnity:
Rights of Indemnity Holder
 Right to recover Damages: Recover all the
damages which he may be compelled to pay in
respect of any suit filed against him.
 Right to recover Cost of Suit: All expenses in
respect of any suit filed by him with the authority of
indemnifier.
 Right to recover Sums: All expenses which he
might have paid as a result of any compromise
which was made with the consent of indemnifier.

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 Contract of Indemnity:
Rights of Indemnifier
 There is no provision in the law about the Rights of
Indemnifier.
 It is a principle of law that when one person has
agreed to indemnify another, his right will be similar
to the right of guarantor.

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 Contract of Guarantee

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 Contract of Guarantee – Legal Dictionary
 To agree to be responsible for another's debt or
contractual performance if that other person does not
pay or perform. Usually, the party receiving the
guarantee will first try to collect or obtain performance
from the debtor before trying to collect from the one
making the guarantee-Guarantor
 The promise to pay another's debt or fulfill contract
obligations if that party fails to pay or perform.
 Occasionally, the person to whom the guarantee is made
 A promise to make a product good if it has some defect

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 Contract of Guarantee
A contract to perform the promise, or discharge the
liability of a third person in case of his default.
Parties to a contract of Guarantee
 person who gives the guarantee is called the
‘Surety’
 person in respect of whose default the guarantee is
given is called the ‘Principal debtor’
 person to whom the guarantee is given is called the
‘Creditor’

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 Essentials
1. Tri parties contract:
2. Consideration
3. Misrepresentation or concealment (hide
any facts about the contract of parties)
4. Primary Liability of Principal debtor
5. Writing not necessary
6. Capacities of parties

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 Types of Guarantee
 Specific guarantee ( One single
transaction)
 Continuing guarantee…. ( Series of
transactions) All the documents to be read
as a whole

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 Discharge of Surety from Liability
 By notice of revocation
 Death of Surety

 Changes in the terms and conditions or

arrangement by (Debtor and Creditor) without
informing the surety.
 Discharge of principle Debtor

 Creditors Act of omission (omit any act

require to do )
 Loss of security

 Invalidation of the contract

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 Indemnity Vs Guarantee
indemnity
Number of parties There are two
parties indemnifier & indemnity holder.
Number of contracts
There is only one contract.
Object
The indemnifier undertakes to save
the indemnity holder from any loss.
Nature of liability The liability of
indemnifier is primary & unconditional.
Commencement of liability
The liability arises only on the
happening of a contingency.
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guarantee
There are three parties principal
debtor, creditor and surety.
There are three contracts.
The surety undertakes for the payment
of debts of principal debtor in case of
his default.
The liability of surety is secondary and
conditional and co-extensive.
The liability arises only on the
nonperformance of an existing
promise or non-payment of an existing
debt.
 Bailment & Pledge

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 Contract of Bailment
 Bailment is the voluntary transfer of the possession
of goods to another person on condition that he will
return the goods after accomplishment of purpose.
 If a person already in possession of the goods of
another person contracts to hold the goods, he
becomes the bailee and owner becomes the bailor.
 The person delivering the goods is called the bailor and
the person to whom the goods are delivered is called the
bailee.
 A delivers crates of apple to B for storage. There is a
contract of bailment.

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 Contract of Bailment: Essentials
 Contract between bailor and bailee. (for any
Purpose)
 Specific Purpose (for repair)
 Delivery of Goods
 No change of Ownership
 Return of same goods

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 Kinds of Bailment :Benefit
 For the benefit of bailor-
A delivered some precious goods for safe
custody to B his friend, without any charge. It
is a bailment for the benefit of bailor
 For the benefit of bailee
A borrows B’s umbrella to use in the rainy
season. The bailment is for the benefit of
bailee.
 For the benefit of both bailor and bailee
A delivers cloth to B, a tailor for making of
suit. It is for the benefit of bailor and bailee.
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Kinds of Bailment Rewards
 Bailment without Reward – (Gratuitous)
 Lending of a book to a friend
 Bailment for Reward – (Non- Gratuitous)
 Motor cycle let out for hire/ repair

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 Duties of Bailor
 Duty to Disclose Fault
 Duty to Repay Necessary Expenses
 Duty to Repay Extra-ordinary Expenses
 Duty to Indemnify for Demanding back (Earlier)
 Duty to Indemnify for defective title
 Duty to Receive Back the Goods

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 Rights of Bailor
 To Claim Damages
 To Demand Return of Goods
 To Claim Increase – Prize Bonds
 To Terminate Bailment
 To Sue Against Breach of Contract
 If Goods are not Returned or Disposed of as
Directed. Action for Negligence, Destruction etc.
 Against 3rd party who damaged or take the bailed
property from the bailor’s possession.

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 Duties of Bailee
 Take Reasonable Care
 Not to Make Unauthorised Use
 Not to Mix the Goods
 Duty to Return the Goods

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 Rights of Bailee
 To Claim Damages
 To Recover Expenses
 To Deliver Goods
 To Be Compensated –
 Bailed Goods sans ownership & Caused damages
 To Stop Delivery – Defective Title
 To Sue – Third person wrongly deprives
 To Mark Lien –
 To retain Possession until receipt of debt or claim

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 Termination of Bailment
 Expiry of Time – Specified time for Bailment
 Accomplishment of Purpose – Computer for Repair
 Un-authorized Use – Bailee acts against the Terms
 On Death – A Gratuitous bailment (Book for Study)
 Termination by Bailor
 Destruction of Subject Matter

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 Finder of Lost Goods

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 Finder of Lost Goods
A Person who finds goods belonging to another and
takes them into his custody is subject to the same
responsibility as a Bailee.
 The finder of lost goods is not liable to take
possession of such goods.
 When he takes possession of lost goods, he
becomes responsible like a bailee in a gratuitous
bailment.
 The finder of lost goods has to retain the goods
against all except the Real Owner.

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 Finder of Lost Goods – Duties
 To Find Out the Owner
 To made reasonable efforts to find out true owner.
Advertisement may be given if goods are valuable. In
case the goods are of little value, he should shout three
times before the group of peoples in search of owner. If
the finder fails in his duty, he will be liable as a Thief.

 To Take Reasonable Care

 To take care as a man of Ordinary Prudence, under
similar circumstances, takes care of his own goods of
the same description.
 .

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 Finder of Lost Goods – Duties
 Not to Use the Goods
 Must not use for his own purpose. Otherwise he will be
liable for any loss or damage.

 Not to Mix the Goods

 Must not mix with his own goods. Otherwise liable..

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 Finder of Lost Goods – Rights
 To Retain
 Retain Possession of the goods again everybody except
true owner. It is important that the finder never becomes
the owner of the goods. The ownership will always
remain with the true owner however the finder only have
the right to retain possession.
 Right of Lien
 A finder of goods can retain the goods for compensation
for trouble and expenses incurred by him to preserve the
goods and to find out the true owner.

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 Finder of Lost Goods – Rights
 To Sue Third Person
 To anyone who deprives him of the possession
of the goods.
 Sue for Rewards
 If the owner has offered some reward for the
finder of the lost goods, the finder can sue the
owner for the reward. The finder has the right to
retain the goods for reward.

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Finder of Lost Goods – Right to Sale
 When the Finder Fails to Find Out True
Owner with Reasonable Diligence.
 When the owner Refuses to Pay the Lawful
Charges of the Finder.
 When the goods are Perishing or of Losing
Greater part of its Value.
 When the Lawful Charges of the Finder
regarding the goods found, become two third
of its value.

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 Pledge OR Pawn

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 Pledge or Pawn – Definition
A special kind of bailment of goods as security for
payment of a debt or performance of a promise.

 The Bailor in this case is called Pawnor or Pledgor

 The Bailee is called Pawnee or Pledgee (A person
with whom something is deposited as a pledge)

Example A borrows Rs 1000,000 from B and give his

car as security of Payment of debt. The bailment of
car is called a Pledge.

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 P L E D G E – Essentials
 Movable Property
 Limited Interest
 Transfer of Possession

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 Pledgee – Rights
 To Retain – Debt + Maintenance
 Not to Retain for other Debts
 To Retain for Extra-Ordinary Expenses
 To Sue and Sell – Reasonable Time & Notice

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 Pledgee – Duties
 Take Reasonable Care
 No Un-authorized Use
 Not to Mix with Own Goods
 Not to do any Act In-consistent with Terms
 Return the Goods after Receipt of Dues
 Deliver any Accretion to the goods

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 Pledgor – Rights
 To Redeem (Compensate for the fault):
 Claim Damages
 Claim Increase
 Redeem the debt – Pay debt before
sale after default

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 Pledgor – Duties
 To Compensate – Expanses or extra
ordinary expanses
 To Complete – Task before date with all
obligations

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Ledge Vs Bailment
Pledge Bailment
Nature of contract The bailment is the delivery of goods by
The bailment of goods as security for one person to another for some
payment of a debt or performance of a purpose, upon a contract that they shall,
promise is called pledge. when the purpose is accomplished, be
returned or otherwise disposed of
according to the directions of the person
delivering them.
Name of parties pawnor and pawnee Bailor and bailee
Purpose The purpose of pledge is Bailment is for safe custody,
security for the performance of a specific transportation
promise, i.e. the payment of a debt or etc.
performance of a Promise
Right to use Pawnee has no right to Bailee can use if terms of bailment so
use the goods pledged. provide.
Right to sell Pawnee can sell the goods Bailee can either retain the goods or sue
pledged after giving notice to the pawnor the bailor for his dues.
in case of default by the pawnor.

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