Contract of indemnity Sec124
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’.
Illustration - A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.
Contract of guarantee sec126
A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The person who gives the guarantee is called the “surety”; [Person giving guarantee is also called as ‘guarantor’. However, Contract Act uses the word ‘surety’ which is same as ‘guarantor’].
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”.
RULES
1-A guarantee may be either oral or written.
2-Three parties are involved in contract of guarantee. Contract between any two of them is not a ‘contract of guarantee’.
3-Primary liability is of the principal debtor. Liability of surety is secondary and arises when Principal Debtor fails to fulfill his commitments. However, this is so when surety gives guarantee at the request of principal debtor. If the surety gives guarantee on his own, then it will be contract of indemnity. In such case, surety has all primary liabilities.
CONSIDERATION FOR GUARANTEE
Anything done, or any promise made, for the benefit of the principal debtor, may be sufficient consideration to the surety for giving the guarantee.
Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is sufficient consideration for C’s promise.
(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C’s promise.
(c) A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.
Bailment sec148
Bailment is another type of special contract. Since it is a ‘contract’, naturally all basic requirements of contract are applicable. - - 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.
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. Bailment can be only of ‘goods’.
As per 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’. Asking a person to look after your house or farm during your absence is not ‘bailment’, as house or farm is not a movable property
Bailment of pledges
Pledge is special kind of bailment, where delivery of goods is for purpose of security for payment of a debt or performance of a promise. Pledge is bailment for security.
Common example is keeping gold with bank/money lender to obtain loan. Since pledge is bailment, all provisions applicable to bailment apply to pledge also. In addition, some specific provisions apply to pledge. The bailment of goods as security for payment of a debt or performance of a promise is called “pledge”.
The bailor is in this case called the “pawnor”. The bailee is called the “pawnee” sec172
Contract of Agency -
Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do every transaction himself. Hence, he should have opportunity or facility to transact business through others like an agent.
The principles of contract of agency are –
(a) Excepting matters of a personal nature, what a person can do himself, he can also do it through agent (e.g. a person cannot marry through an agent, as it is a matter of personal nature)
(b) A person acting through an agent is acting himself, i.e. act of agent is act of Principal. - - Since agency is a contract, all usual requirements of a valid contract are applicable to agency contract also, except to the extent excluded in the Act. One important distinction is that, no consideration is necessary to create an agency.
contd
AGENT AND PRINCIPAL DEFINED - An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal” [section 182].
WHO MAY EMPLOY AGENT - Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent. [section 183]. - - Thus, any person competent to contract can appoint an agent.
WHO MAY BE AN AGENT - As between the principal and third persons any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained. [section 184]. - -
The significance is that a Principal can appoint a minor or person of unsound mind as agent. In such case, the Principal will be responsible to third parties. However, the agent, who is a minor or of unsound mind, cannot be responsible to Principal. Thus, Principal will be liable to third parties for acts done by Agent, but agent will not be responsible to Principal for his (i.e. Agent’s) acts.
CONSIDERATION NOT NECESSARY - No consideration is necessary to create an agency. [section 185]. Thus, payment of agency commission is not essential to hold appointment of Agent as valid.
DUTIES OF AGENT
AGENT’S DUTY TO PRINCIPAL - An agent has following duties towards principal. *
1. Conducting principal’s business as per his directions
2. Carry out work with normal skill and diligence
3. Render proper accounts
4. Agent’s duty to communicate with principal
5. Not to deal on his own account, in business of agency
6. Agent’s duty to pay sums received for principal
7. Agent’s duty on termination of agency by principal’s death or insanity
REMUNERATION TO AGENT - Consideration is not necessary for creation of agency. However, if there is an agreement, an agent is entitled to get remuneration as per contract.
RIGHTS & DUTIES OF PRINCIPAL
RIGHTS OF PRINCIPAL –
1. Recover damages from agent if he disregards directions of Principal
2. Obtain accounts from Agent
3. Recover moneys collected by Agent on behalf of Principal
4. Obtain details of secret profit made by agent and recover it from him
5.Forfeit remuneration of Agent if he misconducts the business.
DUTIES OF PRINCIPAL –
1. Pay remuneration to agent as agreed
2. Indemnify agent for lawful acts done by him as agent
3. Indemnify Agent for all acts done by him in good faith
4. Indemnify agent if he suffers loss due to neglect or lack of skill of Principal.
TERMINATION OF AGENCY
1. An agency is terminated by the principal revoking his authority;
2. or by the agent renouncing the business of the agency;
3. or by the business of the agency being completed;
4. or by either the principal or agent dying or becoming of unsound mind;
5. 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.
In following cases, an agency cannot be revoked –
1. Agency coupled with interest
2. Agent has already exercised his authority
3. Agent has incurred personal liability.
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