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SHARADA KS CONTRACT- II (2013) 1
Contract
SHARADA KS CONTRACT- II (2013) 2
Contract of Indemnity
SHARADA KS CONTRACT- II (2013) 3
Contract of
Guarantee
Creditor Principal debtor Surety
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Contract of Guarantee
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Contract of Bailment and Pledge
Bailment Pledge
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Agency
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Indian Partnership Act
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Sale of goods Act Definition Contract of sale Essentials Conditions and warranties Effects of the contract Passing of property Transfer of Title Transfer of Risk Performance of the contract Rights of unpaid seller Remedies for breach of contract
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Contract of IndemnityMeaning – Indemnity is protection against loss, esp. in the form of a
promise to pay or payment for loss of money, goods etc..(Acc. To Longman’s dictionary.)
Acc. Chambers New English Dictionary- It is a Security against or compensation for loss etc
Ex:-1 A Contracts to Indemnify B against the consequences of any procedings which C may take against B in respect of a certain sum Rs 200.
Ex:- 2 Demand draft (indemnity bond)
Parties –
1) Indemnifier- the person who gives the Indemnity or promises to indemnify is known as Indemnifier (promisor).
2) Indemnity-holder- the person for whose protection it is given is called the Indemnity-holder/Indemnified (promissee).
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Definition
Section-124 : a contract of indemnity means “a Contract by which one party promises to save other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person is called a ‘a contract of indemnity’
Includes- loss caused
a) by the promisor himself
b) by any other person
Excludes – loss arising from accidents like fire or perils of the sea
Express or implied
Example- Implied indemnity
Secretary of state V/s Bank of India Ltd ( forged endorsement )
Implied indemnity between Public Debt officer and Bank
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Insurance indemnity- almost all insurances other than Life and personal accident insurance are contract of indemnity .
Essentials- 1. Two parties2. Implied or expressed3. Subject to all the rules of contract (free consent, legality of object,
consideration etc)4. Enforceable only when promisee suffers a loss
English Law – include a promise of indemnity against loss arising from any cause
whatsoever, ex:- loss caused by fire or by some other accident.
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Rights of Indemnity holder and Indemnifier
Acc- Section 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 promisor-
1. Right to claim damages2. Recovery of cost 3. Recovery of all the sums paid
(Rights of Indemnity- holder/ liability of Indemnifier):-Liability of Indemnifier to the Indemnity- holder is primary and Independent.
Rights of Indemnifier4. Right to refuse claim5. Right to sue on behalf of the indemnified6. Right against the third party7. Right to subrogation
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Commencement of Liability
The Indian contract Act 1872 is silent
Original English rule- 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.
Gajanan Moreshwar V/s Moreshwar Madan
- On the basis of judicial pronouncement of courts, it can be said that the liability commences as soon as the liabilities of the Indemnity-holder becomes absolute and certain.
Specific Time for Notice: Praful Kumar Mohanty V/s Regional Manger of Oriental Insurance Co. Ltd
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Synopsis -1. Contract of Guarantee, object- meaning and definition
2. Essential features of guarantee
3. Distinction b/n Indemnity and guarantee
4. Liability of surety
5. Discharge of surety from liability
6. Rights of surety
7. Rights against the Co-surety
Contract of Guarantee
Definition
Section- 126 : defines a contract of Guarantee as- a contract to perform or discharge the liability of a third person in case of his default.
Surety – the person who gives the guarantee is called Surety
Principal debtor- the person in respect of whose default the guarantee is given is called Principal debtor-
Creditor – is the person to whom the guarantee is given is called Creditor
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Sec.-127. Consideration for guarantee
Anything done, or any promise made, for
the benefit of the principal debtor, may be
a sufficient consideration to the surety for
giving the guarantee.
Illustrations
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Nature of Contract of Guarantee
1. Primary contract- b/n Principal debtor- and Creditor2. Secondary Contracts
b/n surety and creditorb/n surety and Principal debtor
Essentials :3. Oral or writing ( U/S 126)4. Should be PD5. Consideration6. Consent of surety should not be obtained by misrepresentation or
concealment
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142. Guarantee obtained by misrepresentation, invalid
Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.
143. Guarantee obtained by concealment, invalid
Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.
Illustrations
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1. Specific Guarantee/ ordinary Guarantee - ex: availing a loan from a bank
2. Continuing Guarantee- ex :series of transactions
129. Continuing guarantee -A guarantee which extends to a series of transaction, is called, a "continuing guarantee".
Illustrations
Types of Guarantee
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Distinction b/n Indemnity and guarantee
Indemnity
1. Number of parties (two-indemnifier and indemnity holder)
2. Number of contracts (one)
3. Liability of Indemnifier-primary and independent
4. Request – at his own risk
5. Purpose- reimbursement
of loss
6. Existence of liability- on happening of a contingency
7. Filing of suit-indemnifier cannot sue in his name
Guarantee
1. Number of parties (three-creditor, principal debtor and surety )
2. Number of contracts (three-b/n P.D & C, b/n P.D &
S, b/n S & C)
3. Liability of surety – secondary
4. Request-surety on request
5. Purpose-to secure performance of contract
6. Liability already Exists
7. Filing of Suit- surety after discharging his obligations can sue P.D
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Liability of surety
I Co-extensive
Section 128- the liability of surety is co-extensive with that of the P.D unless it is otherwise provided by the contract.
Ex. A (P.D) B (Bank Creditor) C (surety)
10,000 loan from bank to P.D. - P.D and Surety both are liable to the same amount.
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and charges which may have become due on it.
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Liability of surety
I Co-extensive
Narayan Singh V/S Chattar Singh
(U/ Rajasthan Relief of Agricultural Indebtedness Act 1957)
Surety liability also been reduced
Court held: the effect of scaling down the Principal debtor’s liability was that the Surety’s liability had also been reduced accordingly.
Illegality of Contracts: Surety is not liable
Minor (P D ) : – is void contract -- Surety is not liable
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Liability of surety
II Joint and Several with P.D
U/S – 128 if P.D makes a default i.e. he fails to perform his obligation the creditor can sue either the P.D. or the surety or both of them.
Condition: imposing any condition precedent upon the decree-holder ( creditor) to exhaust all his remedies against he P.D. before proceeding against the surety.
But court can not introduce this condition Bank of Bihar V/S Damodar Prasad Union Bank of India V/S Manku Narayan Panpori V/S Central Bank of India,(2002)
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Action against P.D alone ( union bank of India U/s Noor dairy forms)\
Suit against the Surety Alone Death of Principal Debtor (Syndicate Bank U/S A.P. Manjunath)
Section 145. Implied promise to indemnify surety - In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.
.
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III Surety’s right to limit his Liability or to make it Conditional
128. Surety's liability -The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.
Illustration
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1. Place a limit upon his Liability (Aditya Narayan Chouresia U/S Bank of India)
2. A surety can attach any other Condition to his Liability
Sec.-144. Guarantee on contract that creditor shall not act on it until co-surety joins -
Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has jointed in it as co-surety, the guarantee is not valid that other person does not join.
3. Collateral Security
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Liability of Co-surety - Co- extensive PrincipleJoint and several
Impossibility of main Contract ( Florence Mabel R.J U/s State of Kerala)
Novation of Main Contract ( Satish Chandra Jain U/s National small Industries Corp. Ltd
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Liability of surety
Continuing Guarantee-
U/S 129-Continuing Guarantee- A guarantee which extends to a series of transactions is called a Continuing guarantee
Ex:
A – P.D. collecting rent B- house owner ( creditor)
C - Surety
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Continuing Guarantee- (b) A guarantees payment to B of the price of five sacks of flour to be
delivered by B to C and to be paid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four sacks to C, which C does not pay for. The guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks.
Kay V/S Groves
Surety can be revoke for future transactions
Death of Surety also puts to an end to continuing Guarantee
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Discharge of Surety
1. By Revocation [ S.130]
2. By death of Surety [S.131]
3. By variance [S.133]
4. Release or Discharge of Principal Debtor
5. Composition, Extension of Time and Promise not to Sue[S.135]
6. By impairing Surety’s Remedy[S.139]
7. By loss of the security by the Creditor [ S. 141]
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130. Revocation of continuing guarantee
A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.
Illustrations
Offord V/s Davies
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131. Revocation of continuing guarantee by surety‘s death -
The death of the surety operates, in the absence of any contract to the contrary, as a revocation of continuing guarantee, so far as regards future transactions.
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133. Discharge of surety by variance in terms of contract-
Any variance made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.
Illustrations
Bonar V/S Macdonald
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134. Discharge of surety by release or discharge of principal debtor -
The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.
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Section 135- Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor
A contract between the creditor and the principal debtor, by which the creditor make a composition with, or promises to give time, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.
(i) Creditor Compounding with the Principal debtor
(ii) Creditor promising to give time to the Principal debtor
(iii) Creditor promising not to sue the Principal debtor
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Mere forbearance to sue not enough
137. Creditor's forbearance to sue does not discharge surety:-
Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him, dies not, in the absence of any provision in the guarantee to the contrary, discharge the surety.
Forbearance to sue until the end if the period of limitation
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139. Discharge of surety by Creditor's act or omission impairing surety's eventual remedy -
If the creditor does any act which is inconsistent with the right of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.
Illustrations
State of M.P. V/S Kaluram
M.R. Chakrapani V/s Canara Bank
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By loss of the security by the Creditor
Sec.- 141. Surety's right to benefit of creditor's securities - A surety is
entitled to the benefit of every security which the creditor has against the
principal debtor at the time when the contract of suretyship entered into,
whether the surety knows of the existence of such security or not; and if the
creditor loses, or without the consent of the existence of such security or
not; and if the creditor loses, or without the consent of the surety, parts with
such security, the surety, the surety is discharged to the extent of the value
of the security.
Illustrations
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Rights of Surety
Rights against the Principal Debtor Rights against the Creditor Rights against the Co- sureties
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Rights against the Principal Debtor
1. Right of Subrogation ( sec. 140)
2. Right of indemnity against the principal debtor
(Sec.145)
140. Rights of surety on payment or performance -
Where a guaranteed debt has become due, or default of the principal
debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.
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2. Right of indemnity against the principal
debtor
145. Implied promise to indemnify surety - In every contract of
guarantee there is an implied promise by the principal debtor to
indemnify the surety, and the surety is entitled to recover from the
principal debtor whatever sum he has rightfully paid under the
guarantee, but no sums which he has paid wrongfully
.
Illustrations
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Right against the Creditor
Right to securities with the creditor
141. Surety's right to benefit of creditor's securities -A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety, the surety is discharged to the extent of the value of the security.
Securities received by the Creditor at the time of Contract of Guarantee
Illustrations
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State of M.P. V/S Kaluram
Loss of securities without creditor’s negligence Securities received by the Creditor after the Contract of Guarantee Surety has right to goods in hypothecation Right of surety who guarantees a part of the debt
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Right against the Co- sureties
Right of Contribution against co-sureties (Sec. 146 and 147)
146. Co-sureties liable to contribute equally - Where two or more persons are co-sureties
for the same debt or duty, either jointly or severally, and whether under the same or different
contract, and whether with or without the knowledge of each other the co-sureties, in the
absence of any contract to the contrary, are liable, as between themselves, to pay each an
equal share of the whole debt, or of that part of it which remains unpaid by the principal
debtor.1
Illustrations
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Contract to the contrary Contribution
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Co-sureties bound in different sums
147. Liability of co-sureties bound in different
sums -Co-sureties who are bound in different sums are
liable to pay equally as far as the limits of their
respective obligations permit.
Illustrations
Release of a co-surety from Liability Anil Kumar V/s Central Bank of India
UNIT II BAILMENT AND PLEDGE
BAILMENT Synopsis
o Bailment o Essentials of a
Bailmento Duties of baileeo Rights of bailee o Position of finder of
goods
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General meaning- Definition
148. ‘Bailment’, ‘bailor’ and ‘bailee’ defined.—
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’.
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Essentials of Bailment1. Delivery of possession ---
Ultzen V/s Nicolls
Kaliaperumal pillai V/s Visalakshmi
Bank Locker
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Actual delivery or Constructive delivery
Sec.149. Delivery to bailee how made -The delivery to be bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf.
Delivery of Possession is of two kinds
i) Actual delivery and (physical possession)ii) Constructive delivery (something done )
Bank of Chittor V/s Narasimbulu
N.R. Srinivas Iyer V/S New India Insurance Co.
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2. Delivery should be upon contractDelivery of goods should be made for some purpose and upon Contract that when the purpose accomplished the goods shall be returned to the bailor.
Ram Gulam V/s Government of U.P.Non contractual bailment
Lasalgaon Merchants Co-operative Bank Ltd. V/S Prabhudas Hathibhai
State of Gujarat V/S Memon MahomedContract express or implied
G-G. of India in Council V/S Jubilee Mills Ltd.,
SHARADA KS CONTRACT- II (2013)
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3. Delivery should be upon some purpose Secretary of State V/s Sheo Singh Rai
Bailment compared with other Similar Relations
1. Bank deposit
2. An Agent
3. Sale, exchange or barter ( Kalyani Breweries Ltd. State of W.B)
4. Post office, Bailee
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Duty of Bailor
Sec. 150 deals with the duty of bailor, bailor are of two kinds namely:
1. Gratuitous Bailor and
2. Reward Bailor
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Bailor's duty to disclose
1. Gratuitous Bailor
150. Bailor's duty to disclose faults in goods bailed -
(1)The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risk; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.
(2) if the goods bailed for hire, the bailor is responsible for such damage, whether he was or not aware of existence of such fault in the goods bailed.
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Gratuitous bailment – A person who lends his articles or goods without any charge, is called a “Gratuitous bailor”. His duty is naturally much less than that of a bailor for hire or consideration.
Illustrations
(a) A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is vicious. The horse runs away. B is thrown and injured.
Whether A is responsible to B for the damage ?.
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2. Bailment for Reward –
when the goods are bailed for hire, the bailor is liable for the damage caused to the bailee by the defective goods, whether the bailor is aware of the existence of faults in the goods or not.
Illustrations
(a) A hires a carriage of B. The carriage is unsafe, and B is not aware of it, and A is injured.
Whether B is responsible to A for the injury ?.
Hyman and Wife V/s Nye and Sons Reed V/s Dean
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Duties of Bailee
1. Duty to take reasonable care of the goods bailed(Sec.151-152)
2. Duty nor to make unauthorized use of the goods bailed (Sec. 153-154)
3. Duty not to mix bailor’s goods with his own goods(Sec.155-157)
4. Duty to return(Sec.159-161, 165-167)
5. Duty to deliver to the bailor increase or profit on the goods bailed(Sec-163)
6. Duty not to set up jus tertii