06 contracts of indemnity guarantee bailment

Contracts of Indemnity and Guarantee

Contracts of Indemnity

Contract of Indemnity Sec. 124 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 1 :Mr. Yasir purchased demand draft of Rs 50,000 from a bank. The draft was lost in transit. Mr. Yasir requested the concerned branch to issue a duplicate demand draft. He had to furnish an indemnity bond- stating therein that in case of any claim on the bank, the indemnifier shall be liable to make good any loss suffered by the bank (Indemnity holder/ Indemnified)

Contract of Indemnity and Guarantee

All Contracts of Insurance are contracts of indemnity except life insurance

In such contracts an insurance company ( insurer) undertakes to indemnify the respective party (assured), of the losses if suffered by the assured in the manner and to the extent agreed in the contract.


Parties in a contract of Indemnity

Indemnifier (Promisor). Indemnity Holder/Indemnified ( Promisee).


Rights of Indemnity Holder When Sued:

• Can recover all damages incurred /Paid by him.

• Can recover costs incurred.

• Can recover sums paid under compromise, if any.


Rights of Indemnifier Settled principle of law :

After compensating the loss to indemnity holder, indemnifier is entitled to all the ways and means by which person indemnified might have protected himself for the loss.

Time of Commencement of Indemnifier’s Liability:When indemnity holder incurs an absolute liability though not actual loss.


Contract Of GuaranteeSec.126- “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”; the person in respect of whose default the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor”. A guarantee may be either oral or written.


Contract Of GuaranteeObjects:

--Enabling a person:

• To avail loan

-- Mr. Aslam availed a loan of Rs 1 million from XYZ Bank. The said bank asked the borrower, Mr. Aslam to furnish a guarantee from a credit worthy party. Mr. Aslam requested Mr. Akram to furnish guarantee for the said loan in favor of XYZ bank.


Contract Of Guarantee

Mr. Akram furnished the guarantee as desired by the bank. In case of default by the borrower (Mr. Aslam), the guarantor/ surety ( Mr. Akram) shall be liable to pay the amount in default.


Contract Of GuaranteeObjects:

• To make credit purchases M/S AQ brothers make credit supplies to Hilton enterprises. Under the agreement, M/S Hilton enterprises furnished guarantee of Mr. Suhail. Mr. Suhail shall be liable to make payments to M/S AQ brothers in case of default by Hilton enterprises.

• To get employment (furnishing guarantee to employer)


Contract Of GuaranteeFurnishing Guarantee to employer for seeking employment

M/S XYZ bank hired the services of Mr. Salman as cashier and asked him to furnish a guarantee of a third party for a sum of Rs 100,000. Mr. Salman furnished guarantee of Mr. Kamal. In case of any loss suffered by the said bank on account of neglect/act committed by Mr. Salman, he shall be liable to make payment to the bank. However, in case of default by Mr. Salman, guarantor shall be liable.

Guarantee may be: o ORAL oro WRITTEN Parties in a contract of guarantee– Surety /Guarantor

--the person who gives guarantee– Creditor.

--the person in whose favor guarantee is given– Principal Debtor.

--the person who primarily incurs liability/ debt


• Primary Contract. Primary contract between Principal Debtor and

Creditor.

• Secondary Contracts. The Contract between surety and creditor and Contract between surety and principal debtor

Nature of a Contract of Guarantee


Kinds Of Guarantee.• Specific Guarantee

--this guarantee is restricted to a specific transaction or engagement. For example availing a loan from a bank.


Kinds Of Guarantee.• Continuing Guarantee:

--Such guarantee covers a series of transactions. For example guarantee furnished to a supplier for making supplies to the extent of rupees one million during the next one year.


Indemnity.1)Number Of Parties,

Twoa) Indemnifier.b) Indemnity holder.

2)Number Of Contracts.One Contract.

Guarantee.

Three Parties.a) Creditorb) Principal Debtor.c) Surety.

Three Contracts:a) P.D & Creditorb) P.D & Surety c) surety & creditor

Distinction Between Indemnity & Guarantee.


Distinction Between Indemnity & Guarantee

3) Liability of indemnifier: is primary and independent from Principal debtor.

4) Request Indemnifier gives indemnity at his own not on the request of third party.

5) Purpose.Reimbursement of loss.

3) Liability of surety: is secondary, it accrues when principal debtor fails to perform his obligations

4) Guarantor.Surety furnishes/ gives guarantee on the request of principal debtor

5) Purpose.To Secure performance of a contract (debt etc) by principal debtor.


6) Existence of Liability.Liability of indemnifier arises only on the happening of a contingency/liability.

6) Liability stipulated performance is guaranteed by the surety e-g, loan already exists –Guarantor promises performance of repayment of loan if P.D defaults.


7) Filing of Suit.Indemnifier cannot sue (in his name) except when there is an assignment of claim in his favor.

7) Surety after discharging his obligations can sue principal debtor.

Contracts of Bailment, Pledge & Agency

Bailment

Bailment– 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 these are delivered is called the “bailee”

Bailment

Essentials of Bailment:Contract

--there is an underlying contract between the bailor and bailee, there may be an explicit contract or it may be an implied contract.

Specific purpose--the bailment of goods is always for some specific

purpose.Delivery of goods.

--there must be delivery of movable goods in a contract of bailment.

Bailment

Essentials of Bailment:

No change of ownership--in a contract of bailment, only the possession of goods is transferred from bailor to the bailee, whereas the bailor has all ownership rights over the goods delivered.

Bailment

Duties of Bailee To take care of goods delivered by bailor sec 151 Bailee not to make un-authorized use of the goods

delivered to him. Sec 154 Bailee to return the goods delivered to him for some

purpose. Sec 160. Bailee to return an increase or profit in lieu of goods

delivered. Sec 163

Pledge

According to section 172 of the Contract Act:

“Pledge is the bailment of goods as security for payment of a debt or performance of a promise”.

Pledge

The pledgee has actual control of pledged stocks/Goods.

Pledgee can sell pledged stocks by giving reasonable notice to the borrower, in case of default by pledgor.

Before disposal pledgee should publish the notice through news papers etc.

Contract of Agency

Contract of Agency

In general terms, Agency refers to the relationship which exists between two legal persons, the Principal and the Agent in which the Agent has to perform different duties/ functions as per instructions of the principal and also enters into contract with the third party on behalf of the principal.

Contract of Agency

• The relationship of agency plays an important role in business and commercial dealings. This relationship is created by virtue of agreement between Principal and Agent

Contract of Agency

Definition of Agent and Principal :Sec 182 Agent is a person employed to do any act for

another or to represent another in dealing with a third person. The person for whom such act is done, or who is so represented, is called the Principal.

Contract of Agency

Duties of the Agent: Duties of agent are contained in sec 211 to 218 of

the Contract Act. Some of the important duties are given below:

i. To follow principal’s instructions

ii. To show required skill and diligence

iii. Agent to render proper accounts

iv. Agent to pass on any benefits derived by him

Contract of Agency

Duties of Principal

i. Payment of remuneration to the agent

ii. not to prevent his agent from performing the duties/ acts assigned to him under the contract and for which remuneration is payable.

iii. Any legitimate expenses which have been incurred by the agent in the course of performance of his duties are to be indemnified by the principal.

06 contracts of indemnity guarantee bailment

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