Acc. To sec. 124 of Indian contract act—A Contract by which one party promises to save the another from losses caused to him by the conduct of the promisor himself or by the conduct of any other person , it is called a contract of indemnity.

Eg: A contracts to compensate B up to a certain amount against the consequences of any action which C may take against B in case B supports in the election of A. Here A is the indemnifier and B is the indemnity holder.

The person who promises to protect another---indemnifier. The person who is so protected or to whom the promise is

made is –indemnity-holder.

1. Essentials of a valid contract.2. Indemnifier promises to save indemnity holder from

the loss caused to him by the conduct of the promisor , or by the conduct of any other person.

3. Contract may be expressed or implied.4. Liability of indemnifier commences when the

indemnified suffers some loss according to the terms and conditions of the contract.

5. Contracts of insurance are also covered in this.

Section 125 states rights ---

1. Claim for damages.-SEC 125(1)

2. Claim for cost of suit.-sec125(2)

3. Recovery of sums paid under conditions of compromise.-sec125(3)

Rights under doctrine of subrogation:- On payment of the amount of loss or liability to the indemnified, the indemnifier is subrogated to all rights of indemnified. Thus he is entitled to the following rights.

-To sue against third party after indemnifying the indemnity holder.

- To claim all the sums paid to indemnified and damages from the person who is liable for the loss.

Acc. To sec. 126 of I.C .Act -A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of default.

PARTIES—surety, principal debtor,& creditor.

Three parties. Three contracts. Secondary liability of surety. Existence of principal debt—enforceability by

law. Consideration-no need for separate

consideration. No misrepresentation or concealment. Contractual capacity of parties.

1.Specific guarantee 2.Continuing guarantee REVOCATION OF CONTINUING GUARANTEE— By notice of revocation. By surety’s death. By novation. By alteration in the terms of contract. Release or discharge of principal debtor. Arrangement between Principle debtor &Creditor. Loss of security.(details in discharge of surety from

liability)

In general circumstances the liability of surety arises only in case of default of principle debtor so his liability is secondary.

the liability of surety is co-extensive with that of principal debtor—if liability of principle debtor reduces then surety’s liability also reduces.—when creditor recovers a part of his loan from property of principal debtor, then also surety’s liability is reduced.

--when liability of principle debtor is reduced by order of court.

If due to some reasons the p.d. cannot be held liable , still surety can be held liable in following situations—

If p.d. is a minorIf p.d. is declared insolvent.If liability of p.d. has become time-barred.If creditor delays in filing suit against the

debtor.---moreover, in certain cases a surety can

restrict or limit his liability if he wants to do so.he can also restrict the amt. of liability.

Liability of surety commences with default of the principal debtor.—the creditor has the right to sue the surety even without taking action against the p.d.

By revocation of contract of guarantee—only for future transactions ,he still remains liable if liability arises before giving notice.

By surety’s death---the estate of deceased is liable for transaction which has already taken place.

By novation. By variance in the terms of contract.

By release or discharge of principal debtor.---but if due to operation of law principle debtor, is discharged, say on insolvency, surety is not discharged.

Agreement with p.d.---regarding giving more time,not to sue against him,without getting consent of surety.

By creditor’s act or omission imparing surety’s remedy.—harming surety’s interest.

By loss of security by creditor.By invalidation of guarantee---obtained by mis-

representation,fraud,or in case of refusal of co-surety.

Rights against debtor-Right of subrogation. (surety steps into the

shoes of the creditor)Right to be

indemnified.(by the principle debtorfor the principle debt

and other costs)

Rights against creditor-

Right to securities. Right to get

information about debtor’s conduct.

Right to set off-if he has to settle his own amt. from creditor.

According to Sec 148 of the Contract Act, 1872, ‘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 and the transaction is called the bailment.

 Essentials of Bailment It is a delivery of movable goods by one person to another . According to Section 149 the delivery of goods may be actual or constructive. The goods are delivered for some purpose. When they are delivered without any purpose there is no bailment as defined under Sec 148 The goods are delivered subject to the condition that when the purpose is accomplished the goods are to be returned in specific or disposed of according to the directions of the bailor, either in original form or in altered form.

In bailment ownership remains with the person who deliver the goods. The title of the goods is not transferred to the bailee.

eg: A gives B , a piece of cloth to be stitched into a shirt. It is actually a bailment where A gives the goods to B so that it may turn out into a new form. Ownership s not transferred and B has to return back the stitched hirt to A.

CLASSIFICATION OF BAILMENT:CLASSIFICATION OF BAILMENT:

On the basis of willingness Voluntary Bailment : Express contract between the parties. Involuntary bailment: Arises as per the operation of law. 

On the basis of Rewards:   Gratituous Bailment :   Where neither the bailor nor the bailee

get any remuneration, then, it gratuitous. Here, the bailee keeps goods for the bailor without reward. Eg: lending of a car to a friend.  

Non-Gratituous Bailment :  When either the bailor or bailee get remuneration, then it is known as non-gratuitous bailment.

Eg: Car lent out for hire.

RIGHTS OF BAILOR:   RIGHTS OF BAILOR:  

Right of Termination:   bailor has right to terminate the contract of bailment, if the bailee does any inconsistent act with regards to goods.  

Right to Demand Return of Goods:  Any time in case of gratuitous bailment. The bailor can demand back goods bailed at any time even if he had lend it for a specific goods.

Right to file a suit against a wrong doer.   Enforcement of Rights:  The duties of bailee are the

rights of bailor & bailor can enforce those rights by filing a suit against bailee.  

DUTIES OF BAILOR:   DUTIES OF BAILOR:  

Duty to disclose known defects:  A bailor is bound to disclose all the defects relating to goods of which he is known.  

Duty to Bear Extraordinary expenses: Where the bailment is gratuitous & the bailee is not to receive any remuneration, the bailor shall pay bailee all the necessary expenses.   

Bear Risk for Loss:  bailor is to bear risk of loss or destruction of the thing bailed if the bailee had taken prudent care of the goods.  

Duty to indemnify bailee: bailor has to indemnify bailee for any loss due to imperfect title in the goods bailed.

Duty to receive back the goods: on the expiry of the term of bailment.

DUTIES OF BAILOR:   DUTIES OF BAILOR:  

Duty to disclose known defects:  A bailor is bound to disclose all the defects relating to goods of which he is known.  

Duty to Bear Extraordinary expenses: Where the bailment is gratuitous & the bailee is not to receive any remuneration, the bailor shall pay bailee all the necessary expenses.   

Bear Risk for Loss:  bailor is to bear risk of loss or destruction of the thing bailed if the bailee had taken prudent care of the goods.  

Duty to indemnify bailee: bailor has to indemnify bailee for any loss due to imperfect title in the goods bailed.

Duty to receive back the goods: on the expiry of the term of bailment.

PLEDGE OR PAWN  According to Sec 172, Contract Act, 1872, ‘ The bailment of goods for repayment of a debt or performance of a promise is called ‘pledge’. The bailor in this case is called the pawnor, the bailee is called the pawnee.

Essential Features of a validpledge Delivery of possession Delivery should be upon a contract Delivery should be for the purpose of security Delivery should be upon condition to return

Duties of a Pawnor Duty to repay the loan Duty to pay extra expenses incurred by the pawnee for the preservation of the goods pledged with him. Duties of a pawnee Duty not use of pledged goods Duty to return the goods Duty to take reasonable care of goods pledged.Right of PawnorRight to get back the goods pledgedRight to redeem debt and take back the delivered goods.

Pledger can enforce the preservation and maintenance of goods pledged.

Right of Pawnee Right to retain the pledged goods Right to get extra ordinary expenses Right to file suit in case of default of

payment by the pawnor Right to sell the goods in case of

default.