03 Special Contracts

8/10/2019 03 Special Contracts

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Special Contracts


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IndemnityA contract by which one party promise to save the other

from loss caused to him by the conduct of the promisorhimself or by the conduct of any other person is aContract of Indemnity"X purchased DD of Rs 50000 from a ban! #he draft was lost intransit Xre%uested the concerned branch to issue a duplicate

DD &e had to furnish an indemnity bond that in case of anyclaim on the ban! X'indemni(er) shall be liable to ma!e *oodthe loss su+ered by the ban! 'Indemnity holder, Indemni(ed)

#he de(nition provides the followin* essential elements -

.#here must be a loss

.#he loss must be caused either by the promisor or by anyother person

.Indemni(er is liable only for the loss

.#his contract is contingentin nature and is enforceableonly when the loss occurs


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Contract of GuaranteeA contract of *uarantee is a contract to perform

the promise or to dischar*e the liabilities of athird person in case of his default

#he person who *ives the *uarantee is calledSuretythe person in respect of whose default

the *uarantee is *iven is called PrincipalDebtor and the person to whom the *uaranteeis *iven is called Creditor

A /uarantee may be either oral or written

Illustration X promises to a shop!eeperY thatX will pay for the items bein* bou*ht by Z if Zdoes not pay this is a contract of *uarantee Inthis case if Z fails to payY can sue X to

recover the balance


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Dierences between Indemnityand Guarantee

In a contract of indemnity there are two parties ieindemni(er and indemni(ed A contract of *uaranteeinvolves three partiesAn indemnity is for reimbursement of a loss while a

*uarantee is for securityof the creditorIn a contract of indemnity the liability of the indemni(eris primary and arises when the contin*ent event occursIn case of contract of *uarantee the liability of surety issecondary and arises when the principal debtor defaults

#he indemni(er after performin* his part of the promisehas no ri*hts a*ainst the third party whereas in acontract of *uarantee the surety steps into the shoes ofthe creditoron dischar*e of his liability and may sue theprincipal debtor


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1unction of /uarantee

Is to enable a person to *et aloan or *oods on credit or anemployment

A *uarantee can be *iven for Repayment of a debt

2ayment of the price of the *oods

sold on credit#he *ood conduct or honesty of a

person employed in a particularo3ce


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Special features

Surety's obligation is dependent on principal

debtor's default If the promise is not conditional on default it will not be a

contract of *uarantee but of indemnity

Separate consideration for guarantee not

necessary Sec 46 provides that anythin* done or any promise

made for the bene(t of the principal-debtor may be asu3cient consideration to the surety for *ivin* the*uarantee #hus there is no need for a separate

consideration between the 2rincipal debtor and thesurety consideration received by the 2rincipal debtor issu3cient for the surety

Principal debtor need not be competent tocontract!

In such a case the principal-debtor is not liable but thesuret is liable as the rinci al- debtor


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7an! /uarantee

In business transactions client mayre%uest for (nancial *uarantee from athird party 8 usually 7an!s

9* Reliance ba*s a pro:ect to build a 2ower

pro:ect in China China has limited ability to assessall companies for (nancial stability andcreditworthiness

Performance "G bid-bond *uarantee

advance payment 7/ sta*e payment*uarantee

#inancial "G!#hese are used to secure a(nancial commitments such as a loan asecurity deposit etc


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"ailmento

A ;bailment; involves the deli$ery of goodsby one person to another for some purposeupon a contract that they shall when thepurpose is accomplished be returned or

disposed of accordin* to the directions of theperson deliverin* themo#he person deliverin* the *oods is called the;bailor; and the person to whom the *oods

are delivered is called the ;bailee;o#he e


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9ssentials of 7ailment

4 Delivery of possession Delivery of *oods should be upon a contract

> Delivery of *oods must be for a speci(cpurpose

? Return of *oods

.#he ownership remains with the owner and therecannot be a bailment of immovable property li!e

land.Does not deal with all types of bailment 8 special

Acts 8 Carria*e Act 4@5 Railways Act 4@B@Carria*e of /oods by Sea Act 4@5


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#est cases

%lends a boo! to "to be returned afterthe e


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Duties of the bailor and bailee

7ailers disclose !nown facts

/ratuitous bailment and bailment for reward

7ailers duty to indemnify for loss in case ofpremature termination of *ratuitous bailment

"ailees duty to care man of ordinaryprudence would under similar circumstancesta!e of his own *oods of the same bul! %ualityand value as the *oods bailed

7ailee not to ma!e unauthoriEed use of the*oods

7ailee not to mi< the *oods bailed with his own*oods

#o return the *oods


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Pledge

A ;pled*e; involves a bailment of *oodswhere the *oods are delivered as a securityfor payment of a debt or performance of apromise

#he bailor is called the ;pled*or; or ;pawnor;and the bailee is called the ;pled*ee; or;pawnee;

#hus pled*e is a special !ind of bailmentand can be made only of movable properties

In order to ma!e the pled*e le*ally valid it isessential that the pled*or has the le*alri*ht,title to retain the *oods


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Di+erences between 7ailment and2led*e

Purpose A pled*e is made for a speci(c purpose 'toraise a loan) while bailment can be made for anypurposeProperty In bailment the bailee *ets only thepossession of *oods bailed and the ownershipremains with the bailorIn the case of pled*e the pled*ee ac%uires a specialproperty in the *oods pled*ed whereby he *etspossession coupled with the power of sale on

default&ig(t of sale 7ailee can e


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)ypot(ecation and *ortgage

&ypothecationis used for creatin* char*ea*ainst the security of mo$able assets buthere the possession of the security remains withthe borrower itself #hus in case of default bythe borrower the lender 'ie to whom the *oods

, security has been hypothecated) will have to(rst ta!e possession of the security and then sellthe same

Fort*a*eis used for creatin* char*e a*ainst

immo$able property which includes landbuildin*s or anythin* that is attached to theearth or permanently fastened toanythin* attached to the earth


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+aw of %gency

Agencyis the le*al relationship whichresults from the consent by one person toanother that the other shall act in his behalfand sub:ect to his control and consent by the

other so to actG Qui facit per alium, facit per se ie the

one who acts through another, acts in his orher own interests

Hhatever a person can do personally he cando throu*h an a*ent

It is a parallel concept to $icarious liabilityand strict liability in which one person is

held liable in Criminal law or #ort for the acts


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aw of A*ency

%gent ,#he person employed to do any actfor another or to represent another indealin* with a third persons

Principal ,#he party from whom such act

is done or who is represented Special form of contract which re*ulates the

le*al relationship between the A*ent2rincipal and the #hird party

1iduciary relationship &i*her than ordinaryde*ree of care and responsibility from thedominant or trusted party


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#he 2rincipal-A*ent Relationship

Principal

Agent Third Party

Agency

Contract

Contract with third party on

behalf of principal


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9lements of A*ency 's4B>)2rincipal should be competent to

contract

A*ent need not be competent

any person can become an a*entG Finor

. Finor can bind his principal to others

but cannot bind himself to themConsideration for appointment not

necessary


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1ormation of the A*encyRelationship

9


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1ormation of A*ency RelationshipsType ofAgency

Definition Enforcement of theContract

Express Authority is expressly given to theagent by the principal.

Principal and third party arebound to the contract.

Implied Authority is implied from the conductof the parties, custom and usage of

trade, or act incidental to carrying outthe agents duties.

Principal and third party actsare bound to the contract.

Apparent Authority created when the principalleads a third party into believing thatthe agent has authority.

he principal is estopped.

Principal and third party arebound to the contract.

!y"atification

Acts of the agent committed outsidethe scope of his authority.

Principal and third party arenot bound to the contractunless the principal ratifies

the contract..


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Cases

Harshad Shah v. LIC of India (SC)Shah too! four life insurance policy

throu*h an IC a*ent Delay in deposit

of third premium #he A*ent was *ivena bearer che%ue for the ne


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CasesJ

%directs "to sell As estate " buys for himselfin the name of C Can %repudiate the contractDecide

X a company authorises its mana*erYto enterinto a contract with Z- Y commits fraud ormisrepresent facts while enterin* into a contractwith Z Decide

Can Xrepudiate the contract with Z because it isvitiated because of fraud or misrepresentation.

IsYliable to X


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2rincipals duties2rincipal is bound to indemnify the a*ent

a*ainst the conse%uences of all lawful actsdone by the later within the scope of authority

iability for criminal acts of a*ent

2rincipal is liable to the third party in all cases

done within authority

It is immaterial that the a*ent committedfraud made misrepresentation or did someother wron* for his own bene(t

Respondent superior:an employer isresponsible for the actions of employeesperformed within the course of theiremployment


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#ermination of an A*ency and9mployment Contract

An a*ency contract is similar to othercontracts in that it can be terminatedby

Acts of the parties or Kperation of law

Knce an a*ency relationship isterminated the a*ent can no lon*er

represent the principal or bind theprincipal to contracts


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#ermination by Kperation ofaw

An a*ency is terminated by operation oflaw includin*

4 Death of the principal or a*ent

Insanity of the principal or a*ent

> 7an!ruptcy of the principal

? Impossibility of performance

5 Chan*ed circumstances

Har between the principals anda*ents countries

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03 Special Contracts

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