Special Contract by Sharada prathap

SHARADA KS CONTRACT- II (2013) 1

Contract


Contract of Indemnity


Contract of

Guarantee

Creditor Principal debtor Surety


Contract of Guarantee


Contract of Bailment and Pledge

Bailment Pledge


Agency


Indian Partnership Act


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

9SHARADA KS CONTRACT- II (2013)


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).


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


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.


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


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


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


sharada


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


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


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


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


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


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.


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


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)


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.

.


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


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


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


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


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


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]


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


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.


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


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.


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


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


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


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


Rights of Surety

Rights against the Principal Debtor Rights against the Creditor Rights against the Co- sureties


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.


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


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


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


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


Contract to the contrary Contribution


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



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’.


Essentials of Bailment1. Delivery of possession ---

Ultzen V/s Nicolls

Kaliaperumal pillai V/s Visalakshmi

Bank Locker


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.

52

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)


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


Duty of Bailor

Sec. 150 deals with the duty of bailor, bailor are of two kinds namely:

1. Gratuitous Bailor and

2. Reward Bailor


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.


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 ?.


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


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

Date post:	20-Oct-2014
Category:	Law
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