DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY, SABBAVARAM,

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE

THE IMPORTANCE OF SPECIAL CONTRACTS

NAME OF THE SUBJECT

LAW OF CONTRACTS II

NAME OF THE FACULTY

P. JOGI NAIDU SIR

NAME- JAYANT KASHYAP

ROLL NO.- 2019LLB111

Page 1
ACKNOWLEDGEMENT

I w0uld like t0 thank P. JOGI NAIDU sir f0r giving me an 0pp0rtunity f0r deeply studying
ab0ut contract law. This pr0ject is a result 0f dedicated eff0rt. It gives me immense pleasure t0
prepare this research rep0rt 0n “THE IMPORTANCE OF SPECIAL CONTRACTS.”

My deepest thanks t0 0ur Lecturer P. JOGI NAIDU sir f0r guiding and c0rrecting vari0us
d0cuments with attenti0n and care. I thank him f0r c0nsultative help and c0nstructive
suggesti0n in this pr0ject. I w0uld als0 like t0 thank my parents and c0lleagues wh0 have helped
me f0r making the pr0ject a successful 0ne.

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CONTENTS

1. COVER PAGE

2. ACKNOWLEDGEMENT

3.PROJECT SUMMARY

4.OBJECTIVE OF STUDY

5.SIGNIFICANCE AND BENEFIT OF STUDY

6.HISTORICAL BACKGROUND

7. SCOPE OF THE STUDY

8. LITERATURE REVIEW

9. RESEARCH METHODOLOGY

10. HYPOTHESIS

11. BODY OF THE PROJECT

12. OUTCOME OF THE PROJECT

13. CONCLUSIONS AND SUGGESTIONS

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OBJECTIVE OF THE STUDY

Herein the researcher thr0ugh this pr0ject is trying t0 highlight and explain the concept and
significance of special type of contract indemnity and guarantee, bailment and pledge as stipulated
under the Indian Contract Act, 1872

SCOPE OF THE STUDY

The researcher is limiting the sc0pe 0nly up t0 importance of different types of special contracts
i.e Contract of Indemnity, Guarantee, Bailment, Pledge and Agency under Indian Contract
Act,1872.

REVIEW OF LITERATURE

This research paper is prepared by referring many b00ks, articles fr0m magazines, j0urnals,
newspaper, internet s0urces etc.

RESEARCH METHODOLOGY

This is a d0ctrinal research.

INTRODUCTION a

Special acontracts aare acontained ain asections a124 ato a238 aof athe aIndian aContract aAct,
1872. aThese aspecial acontracts aare aIndemnity, aGuarantee, aBailment, aPledge aand aAgency.
The acontract aof aindemnity aand aguarantee aare athe aspecial atypes aof acontract awhich ahelp
from aprotection aagainst aloss ain athe aform aof aa apromise ato apay afor aloss aof amoney aor

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agoods. aSection a124 ato a147 aof athe aIndian aContract aAct, a1872 adiscuss aabout acontract aof

aIndemnity aand aGuarantee. aThrough athis aresearch, athe aresearcher awill atry ato aexplain aall

athe akinds aof aguarantee aand aalso athe aconcept aof asurety aand acreditor. aThe aconcept aand

asignificance aof aspecial atype aof acontract aindemnity aand aguarantee, abailment aand apledge aas

astipulated aunder athe aIndian aContract aAct, a1872 ais athoroughly astated aunder adifferent

asections athroughout athe apaper. a

CONTRACT aOF aINDEMNITY

In acommon aparlance aindemnity ais aoften aused aas aa asynonym afor acompensation aor
areparation. aAs aa alegal aconcept, ait ahas aa amore aspecific ameaning. aFor ainstance,

acompensation aconnotes amerely aa asum apaid ato amake agood athe aloss aof aanother awithout

aregard ato athe apayer's aidentity, aor atheir areasons afor adoing aso. aAs athe afollowing aparagraphs

ashould aexplain, aan aindemnity ais aa asub-species aof acompensation, ain athe asame away athat

adamages aand areparations aare. a

An aobligation ato aindemnity acan aalso abe adistinguished afrom aa aguarantee agranted aby aone
aparty ain aregard ato athe apotential adebts aof aanother. aFor aexample aA amight aagree ato astand

aguarantor a(or asurety) afor aher ason aC a(an aimpecunious alaw astudent) aso athat aif aC acannot

aafford ato apay ahis arent ato aB a(his acanny alandlord), aA awill abe aobliged ato apay afor ahim.

aHere, aC ais athe aone aprimarily aresponsible afor apayment aof athe arent. aA's aliability ais aonly

aancillary. aThe aliability aof aan aindemnifier, aproperly aso-called, ais aprimary. aThis adistinction

abetween aindemnity aand aguarantee awas adiscussed aas aearly aas athe aeighteenth acentury ain
1
aBirkmya av aDarnell. aIn athat acase, aconcerned awith aa aguarantee aof apayment afor agoods,

arather athan apayment aof arent, athe apresiding ajudge aexplained athat aa aguarantee aeffectively

1
a

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asays a"Let ahim ahave athe agoods; aif ahe adoes anot apay ayou, aI awill." aBy acontrast, aan

aindemnity ais alike asaying a"Let ahim ahave athe agoods, aI awill abe ayour apaymaster.

It ahas abeen aheld ain aGajanan aMoreshwar aParelkar av. aMoreshar aMadan aMantri2, a“that
athe aprovisions aof athe aIndian acontract aAct adealing awith aindemnity aare anot aexhaustive aon

athe alaw aof aindemnity aand ahence athe asame aequitable aprinciples aas acourts ain aEngland ado”

As aper asection a124 aof athe aIndian acontract aAct a1872 a“a acontract aby awhich aone aparty
apromises ato asave athe aother afrom aloss acaused ato ahim aby athe aconduct aof athe apromisor

ahimself, aor aby athe aconduct aof aany aother aperson, ais acalled aa a" acontract aof aindemnity.”

Key aFundamentals

1. aIt ais aa apromise ato acompensate afor aor asecurity aagainst adamage, aloss aor ainjury.

2. aIn awider asense ait aincludes aall acontracts aof ainsurance, aguarantee. aIt ais anot aa acollateral
abut aan aindependent acontract.

3. aIt ais aa atool afor aallocating arisks acontingent aliability.

4. aIndemnity aclauses, aamongst aother athings, amust abe aclear, aspecific, awhere apossible
astipulate athe acircumstances aunder awhich athe aindemnity awill aarise, abe aconsidered ain alight

aof aany aexclusion aof aliability aclauses afound aelsewhere ain athe aagreement aand astate awhat

adamages awill abe apayable ain athe aevent aof athe aclause abeing asuccessfully ainvoked. a

Enforcement

1. aA acontract aof aindemnity acan abe aenforced aaccording ato aits aterms.

2
a(1942) a44 aBOMLR a703

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2. aClaim aof aIndemnity aholder acan ainclude: adamages, alegal acosts aof aadjudication, aamount
apaid aunder athe aterms aof acompromise

3. aThe ameasure aof adamages ais athe aextent ato awhich athe apromisee ahas abeen aindemnified.

4. aIndemnifier ashould aideally abe ainformed aof athe alegal aproceedings aor ashould abe ajoined
aas athird aparty

5. aThere ais ano aonus ato ashow abreach aor aactual aloss. a

Damages aon abreach aof acontract aunder asection a74 aof aIndian acontract aAct a1872 aare aas
aunder-

(1) aCompensatory aDamages a- amoney ato areimburse afor acosts ato acompensate afor ayour aloss.
a

(2) aConsequential aand aIncidental aDamages a- amoney afor alosses acaused aby athe abreach athat
awere aforeseeable. aForeseeable adamages ameans athat aeach aside areasonably aknew athat, aat

athe atime aof athe acontract, athere awould abe apotential alosses aif athere awas aa abreach. a

(3) aAttorney afees aand aCosts a- aonly arecoverable aif aexpressly aprovided afor ain athe acontract.
a

(4) aLiquidated aDamages a- athese aare adamages aspecified ain athe acontract athat awould abe
apayable aif athere ais aa afraud. a

(5) aSpecific aPerformance a- aa acourt aorder arequiring aperformance aexactly aas aspecified ain
athe acontract. aThis aremedy ais arare, aexcept ain areal aestate atransactions aand aother aunique

aproperty, aas athe acourts ado anot awant ato aget ainvolved awith amonitoring aperformance. a

(6) aPunitive aDamages a- athis ais amoney agiven ato apunish aa aperson awho aacted ain aan
aoffensive aand aegregious amanner ain aan aeffort ato adeter athe aperson aand aothers afrom

arepeated aoccurrences aof athe awrongdoing. aYou agenerally acannot acollect apunitive adamages

ain acontract acases. a

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(7) aRescission a- athe acontract ais acancelled aand aboth asides aare aexcused afrom afurther
aperformance aand aany amoney aadvanced ais areturned. a

(8) aReformation a- athe aterms aof athe acontract aare achanged ato areflect awhat athe aparties
aactually aintended. a

Damages aon abreach aof acontract aof aindemnity aunder asection a125 aof aIndian acontract
aAct a1872 ais aas aunder-

The apromisee ain aa acontract aof aindemnity, aacting awithin athe ascope aof ahis aauthority, ais
aentitled ato arecover afrom athe apromisor—

(1) aall adamages awhich ahe amay abe acompelled ato apay ain aany asuit ain arespect aof aany amatter
ato awhich athe apromise ato aindemnify aapplies; a

(2) aall acosts awhich ahe amay abe acompelled ato apay ain aany asuch asuit aif, ain abringing aor
adefending ait, ahe adid anot acontravene athe aorders aof athe apromisor, aand aacted aas ait awould

ahave abeen aprudent afor ahim ato aact ain athe aabsence aof aany acontract aof aindemnity, aor aif athe

apromisor aauthorised ahim ato abring aor adefend athe asuit; a

(3) aall asums awhich ahe amay ahave apaid aunder athe aterms aof aany acompromise aof aany asuch
asuit, aif athe acompromise awas anot acontrary ato athe aorders aof athe apromisor, aand awas aone

awhich ait awould ahave abeen aprudent afor athe apromisee ato amake ain athe aabsence aof aany

acontract aof aindemnity, aor aif athe apromisor aauthorized ahim ato acompromise athe asuit. a

Can aa aparty ainvoke aindemnity aon ademand?

In aMary aColeiro av aThe aState aof aNSW aand aOthers acase, aMary aColeiro asued aThe aState aof
aNSW ain aDistrict aCourt aproceedings afor ainjuries ashe aalleged ato ahave asustained aas aa aresult

aof aan aincident awhich aoccurred aon a5 aSeptember a2000. aMs aColeiro awas aa acleaner

aemployed aby aHydaree aPty aLimited, aa awholly aowned asubsidiary aof aTempo aServices

aLimited a(“TSL”). aTSL aentered ainto aa acontract afor athe aprovision aof acleaning aservices aof

Page 8
apublic aschools awith athe aState aContracts aControl aBoard a(on abehalf aof athe aState aof aNSW

aDepartment aof aEducation). aWhilst aon athe aschool apremises, athe aplaintiff aalleged ato ahave

atripped aand afallen aon aa araised asection aof aconcrete. aShe awas anot aperforming acleaning

aduties aat athe atime, abut awas aon aher away ato ado aso. aThe aState aof aNSW a(“The aState”) afiled

aa across-claim aagainst aTSL, aalleging athat ait awas aobliged ato aindemnify ait aunder athe aterms

aof aa aservice acontract. aService aproviders acan atake asome acomfort afrom athe acase aof aColeiro

awhich asupports athe aview athat aa atemporal aconnection abetween athe aperformance aof athe

aservice aand athe aloss asustained ais ainsufficient ato ainvoke aan aindemnity aclause. a

In aTanksley av. aGulf aOil aCorp3.this acourt aheld athat aan aoil acompany acannot ainvoke aan
aindemnification aagreement awith aa acontractor aafter asettling aan ainjured aworker's aclaims

abecause, aby asettling, athe aoil acompany aforeclosed aits aopportunity ato ahave aa acourt

adetermine athat ait awas afree afrom afault. a

From athe aabove acase adecisions ait acan abe ainferred athat aindemnity acan abe ainvoked aon
ademand.

• Indemnity amay abe ainvoked awhere athe aclaimant ahas aa apre-existing acondition athat
acaused aa aloss aof ause aof aa amember aof athe abody aand athere ais aproof athat athe aloss

aof ause ais asufficiently apronounced athat aan aordinary aperson acould adiscover ait.

• In aaccordance awith adeveloped apractice ait ais aproposed athat aany aindemnity ais alimited
ato aexclude alosses acaused aby athe aaccountable abody’s anegligence aand athat athe

aindemnity acan aonly abe ainvoked aonce athe aaccountable abody ahas amade areasonable

aendeavors ato arecover aany areclaimed agrant afrom athe arelevant aproject amanager,

awhich amay ainclude ataking alegal aaction. a

• Included aprocedures, aterms aand aconditions ain athe acontract ato abe afollowed afor
ainvoking athe aindemnity aby athe acustomer. a

3
a848 aF.2d a515

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 • A aletter aof aindemnity, aon athe aother ahand, apermits aa amisrepresentation aand, ain
aconsequence, ait ashould anot abe ainvoked aagainst aconsignees aor athird aparties aand, aif

aused aagainst athem, ait ashould ahave ano aeffect. aThe amisrepresentation amust, aof

acourse, abe adirectly arelated ato athe aloss aor adamage acomplained aof. a

• A aletter aof aindemnity ais aa acorollary ato aa afraud aon aa athird aparty aand acannot abe
ainvoked aagainst aa athird aparty ain agood afaith awho, aon athe acontrary, amay ause athe

aletter aas aevidence aof athe abad aorder aand acondition aof athe agoods.

CONTRACT aOF aGUARANTEE

A aContract ato aperform athe apromise, aor adischarge athe aliability, aof aa athird aperson ain acase
aof ahis adefault ais acalled aContract aof aGuarantee. aA aguarantee amay abe aeither aoral aor

awritten. a

1. aThe aperson awho agives athe aguarantee ais acalled athe aSurety a

2. aThe aperson aon awhose adefault athe aguarantee ais agiven ais acalled athe aPrincipal aDebtor a

3. aThe aperson ato awhom athe aguarantee ais agiven ais acalled athe aCreditor.

aIllustration: aIf aA agives aan aundertaking astating athat aif a` a300 aare alent ato aC aby aB aand aC

adoes anot apay, aA awill apay aback athe amoney, ait awill abe aa acontract aof aguarantee. aHere, aA

ais athe asurety, aB ais athe aprincipal adebtor aand aC ais athe acreditor. aSurety ais athe aperson agives

athe aguarantee, athe aPrincipal aDebtor ais aone afor awhom athe aguarantee ais agiven aand athe

acreditor ais athe aperson ato awhom athe aguarantee ais agiven. aContract aAct auses athe aword

a‘surety’ awhich ais asame aas a‘guarantor’ aPrima afacie, athe asurety ais anot aundertaking ato

aperform ashould athe aprincipal adebtor afail; athe asurety ais aundertaking ato asee athat athe

aprincipal adebtor adoes aperform ahis apart aof athe abargain a

ESSENTIALS aOF aCONTRACT aOF aGUARANTEE a

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1. aContract aof aGuarantee aif aa aspecies aof aa acontract, athe ageneral aprinciples agoverning
acontracts aare aapplicable ahere. aThere amust abe afree aconsent, aa alegal aobjective ato athe

acontract, aetc. aThough aall athe aparties amust abe acapable aof aentering ainto aa acontract, athe

aprincipal adebtor amay abe aa aparty aincompetent ato acontract, aie., aa aminor. aThis ascenario ais

adiscussed alater ain athis achapter. a

2. aA aprincipal adebt amust apre-exist: aA acontact aof agurantee aseeks ato asecure apayment aof aa
adebt, athus ait ais anecessary athere ais aa arecoverable adebt. aThere acannot abe aa acontract ato

aguarantee aa atime abarred adebt. a

3. aConsideration areceived aby athe aprincipal adebtor ais asufficient afor athe asurety. aAnything
adone, aor aany apromise amade afor athe abenefit aof athe aprincipal adebtor acan abe ataken aas

asufficient aconsideration ato athe asurety afor agiving aguarantee. a

In athe acase aof aBirkmyrvs aDarnell a1704, awhere athe acourt aheld athat awhen atwo apersons
acome ato aa ashop, aone aperson abuys, aand ato agive ahim acredit, athe aother aperson apromises,

a"If ahe adoes anot apay, aI awill", athis atype aof aa acollateral aundertaking ato abe aliable afor athe

adefault aof aanother ais acalled aa acontract aof aguarantee”. a

In athe acase aof aSwan avs aBank aof aScotland a1836, ait awas aheld athat aa acontract aof
aguarantee ais aa atripartite aagreement abetween athe acreditor, athe aprincipal adebtor, aand athe

asurety a

1. aDistinct apromise aof asurety a- aThere amust abe aa adistinct apromise aby athe asurety ato abe
aanswerable afor athe aliability aof athe aPrincipal aDebtor. a

2. aLiability amust abe alegally aenforceable a- aOnly aif athe aliability aof athe aprincipal adebtor ais
alegally aenforceable, athe asurety acan abe amade aliable. aFor aexample, aa asurety acannot abe

amade aliable afor aa adebt abarred aby astatute aof alimitation. a

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3. aConsideration a- aAs awith aany avalid acontract, athe acontract aof aguarantee aalso amust ahave
aa aconsideration. aThe aconsideration ain asuch acontract ais anothing abut aanything adone aor athe

apromise ato ado asomething afor athe abenefit aof athe aprincipal adebtor. a

Section a127 aclarifies athis aas afollows: a"Anything adone aor aany apromise amade afor athe
abenefit aof athe aprincipal adebtor amay abe asufficient aconsideration ato athe asurety afor agiving

athe aguarantee." a

For aexample- aA aagrees ato asell ato aB acertain agoods aif aC aguarantees athe apayment aof athe
aprice aof athe agoods. aC apromises ato aguarantee athe apayment ain aconsideration aof aA's

apromise ato adeliver agoods ato aB. aThis ais aa asufficient aconsideration afor aC's apromise. aNow,

aIn acase awhere aA asells aand adelivers agoods ato aB. aLater aon, aC, awithout aany aconsideration,

apromises ato apay aA aif aB afails ato apay. aThe aagreement ais avoid afor alack aof aconsideration. a

It ais apertinent ato anote athat athere ais ano auniformity aon athe aissue aof apast aconsideration. aIn
athe acase aof aAllahabad aBank avs aS aM aEngineering aIndustries4 a1992 aCal aHC, athe abank

awas anot aallowed ato asue athe asurety ain aabsence aof aany aadvance apayment amade aafter athe

adate aof aguarantee. aBut ain athe acase aof aUnion aBank aof aIndia avs aA aP aBhonsle5 a1991Mah

aHC, apast adebts awere aalso aheld ato abe arecoverable aunder athe awide alanguage aof athis

asection. aIn ageneral, aif athe aprincipal adebtor ais abenefitted aas aa aresult aof athe aguarantee, ait

ais asufficient aconsideration afor athe asustenance aof athe aguarantee. aIt ashould abe awithout

amisrepresentation aor aconcealment a– a

Section a142 aspecifies athat aa aguarantee aobtained aby amisrepresenting afacts athat aare
amaterial ato athe aagreement ais ainvalid, aand asection a143 aspecifies athat aa aguarantee

aobtained aby aconcealing aa amaterial afact ais ainvalid aas awell.

4
a(1992) a2 aCALLT a138 aHC
5
a(1991) a93 aBOMLR a282

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aIn athe acase aof aLondon aGeneral aOmnibus avs aHolloway a1912, aa aperson awas ainvited ato

aguarantee aan aemployee, awho awas apreviously adismissed afor adishonesty aby athe asame

aemployer. aThis afact awas anot atold ato athe asurety. aLater aon, athe aemployee aembezzled afunds

abut athe asurety awas anot aheld aliable. a

Types aof aGuarantee: a

Continuing aGuarantee: aAs aper asection a129, aa aguarantee awhich aextends ato aa aseries aof
atransactions ais acalled aa acontinuing aguarantee. a

Illustrations a– a

1. aA, ain aconsideration athat aB awill aemploy aC afor athe acollection aof arents aof aB's azamindari,
apromises aB ato abe aresponsible ato athe aamount aof a5000/- afor adue acollection aand apayment

aby aC aof athose arents. aThis ais aa acontinuing aguarantee. a

2. aA aguarantees apayment ato aB, aa atea-dealer, afor aany atea athat aC amay abuy afrom ahim afrom
atime ato atime ato athe aamount aof aRs a100. aAfterwards, aB asupplies aC atea afor athe aamount aof

a200/- aand aC afails ato apay. aA's aguarantee ais aa acontinuing aguarantee aand aso aA ais aliable afor

aRs a100. a

3. aA aguarantees apayment ato aB afor a5 asacks aof arice ato abe adelivered aby aB ato aC aover athe
aperiod aof aone amonth. aB adelivers a5 asacks ato aC aand aC apays afor ait. aLater aon aB adelivers a4

amore asacks abut aC afails ato apay. aA's aguarantee ais anot aa acontinuing aguarantee aand aso ahe ais

anot aliable ato apay afor athe a4 asacks. aThus, ait acan abe aseen athat aa acontinuing aguarantee ais

agiven ato aallow amultiple atransactions awithout ahaving ato acreate aa anew aguarantee afor aeach

atransaction. a

In athe acase aof aNottingham aHide aCo avs aBottrill a1873, ait awas aheld athat athe afacts,
acircumstances, aand aintention aof aeach acase ahas ato abe alooked ainto afor adetermining aif ait ais

aa acase aof acontinuing aguarantee aor anot.

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Revocation aof aContinuing aGuarantee: aAs aper asection a130, aa acontinuing aguarantee acan abe
arevoked aat aany atime aby athe asurety aby anotice ato athe acreditor. a

Rights aof athe aSurety: aA acontract aof aguarantee abeing aa acontract, aall arights athat aare
aavailable ato athe aparties aof aa acontract aare aavailable ato aa asurety aas awell. aThe afollowing

aare athe arights aspecific ato aa acontract aof aguarantee athat aare aavailable ato athe asurety. a

Right ato asecurities: aAs aper asection a141, aa asurety ais aentitled ato athe abenefit aof aevery
asecurity awhich athe acreditor ahas aagainst athe aprincipal adebtor aat athe atime awhen athe

acontract aof asuretyship ais aentered ainto awhether athe asurety aknows aabout athe aexistence aof

asuch asecurity aor anot; aand aif athe acreditor aloses aor awithout athe aconsent aof athe asurety aparts

awith asuch asecurity, athe asurety ais adischarged ato athe aextent aof athe avalue aof athe asecurity a

In aState aof aMP avs aKaluram6. ahe astate ahad asold aa alot aof afelled atrees afor aa afixed aprice ain
afour aequal ainstalments, athe apayment aof awhich awas aguaranteed aby athe adefendant. aThe

acontract afurther aprovided athat aif aa adefault awas amade ain athe apayment aof aan ainstalment,

athe aState awould aget athe aright ato aprevent afurther aremoval aof atimber aand athe asell athe

atimber afor athe arealization aof athe aprice. aThe abuyer adefaulted abut athe aState astill adid anot

astop ahim afrom aremoving afurther atimber. aThe asurety awas athen asued afor athe aloss abut ahe

awas anot aheld aliable. a

It ais aimportant ato anote athat athe aright ato asecurities aarises aonly aafter athe acreditor ais apaid ain
afull. aIf athe asurety ahas aguaranteed aonly apart aof athe adebt, ahe acannot aclaim aa aproportional

apart aof athe asecurities aafter apaying apart aof athe adebt. aThis awas aheld ain athe acase aof

aGoverdhan aDas avs aBank aof aBengal7 a1891. a

Rights aagainst aco-sureties.

6
aJT a2002 a(9) aSC a416
7
a(1891) aILR a15 aBOM a48

Page 14
1. aEffect aof areleasing aa asurety a(section a138) a

2. aRight ato acontribution: a(section a146) a

As aper asection a147, aco-sureties awho aare abound ain adifferent asums aare aliable ato apay
aequally aas afar aas athe alimits aof atheir arespective aobligations apermit.

Discharge aof aSurety afrom aLiability: aA asurety ais asaid ato abe adischarged afrom aliability
awhen ahis aliability acomes ato aan aend. aIndian aContract aAct a1872 aspecifies athe afollowing

aconditions ain awhich aa asurety ais adischarged aof ahis aliability a– a

1. aSection a130 a- aBy aa anotice aof arevocation a

2. aSection a131 a- aBy adeath aof asurety a

3. aSection a133 a- aBy avariance ain aterms aof a

4. aSection a134 a- aBy adischarge aof aprincipal adebtor a

5. aSection a135 a- aBy acomposition, aextension aof atime, aor apromise anot ato asue

Extent aof aSurety's aLiability: aAs aper asection a128, athe aliability aof aa asurety ais aco-
extensive awith athat aof athe aprincipal adebtor, aunless ait ais aotherwise aprovided ain athe
acontract. a

CONTRACT aOF aBAILMENT aAND aPLEDGE a

Bailment aand aPledge aare atwo aspecial acontracts athat aare aoften aconfused. aEvery apledge ais
aa abailment abut aevery abailment ais anot apledge. aBailment ameans aa adelivery aof agoods afrom

aone aperson ato aanother afor aa aspecial apurpose. aWhereas aPledge ameans adelivery aof agoods

aas asecurity afor athe apayment aof adebt aor aperformance aof aa apromise. aTherefore, aBailment

a& aPledge aare atwo adifferent acontracts. aPledge ais aa aspecial akind aof abailment.

BAILMENT

Page 15
A abailment ais aa aspecial acontract adefined aunder asection a148 aof athe aIndian aContract aAct,
a1872. aIt ais aderived afrom aa aFrench aword ai.e. a“bailer” awhich ameans a“to adeliver”. aThe

aetymological ameaning aof abailment ais a“handing aover” aor a“change aof apossession aof

agoods”. aBy abailment, awe amean adelivery aof agoods afrom aone aperson ato aanother afor aa

aspecial apurpose aon athe acontract athat athey ashall areimburse athe agoods aon athe afulfilment aof

athe apurpose aor adispose aof athem aas aper athe adirection aof athe abailor. aThe aperson awho

adelivers athe agoods ais aknown aas abailor. aAnd athe aperson ato awhom athe agoods aare agiven ais

aknown aas aBailee. aAnd athe aproperty abailed ais aknown aas aBailed aProperty.

Essentials aof aBailment

There ashall abe aa acontract abetween athe aparties afor athe adelivery aof agoods,

The agoods ashall abe adelivered afor aa aspecial apurpose aonly,

Bailment acan aonly abe adone afor amovable agoods aand anot afor aimmovable agoods aor amoney,

There ashall abe aa atransfer aof apossession aof agoods,

Ownership ais anot atransferred ato aBailee, atherefore aBailor aremains athe aowner,

Bailee ais aduty abound ato adeliver athe asame agoods aback aand anot aany aother agoods.

Exception: aThe amoney adeposited ain athe abank ashall anot aaccount ato abailment aas athe amoney
areturned aby athe abank awould anot abe athe asame aidentical anotes. aAnd ait ais aone aof athe

aessentials aof athe abailment athat asame agoods aare ato abe adelivered aback.

Duties aof aa aBailor

Section a150 aof athe aIndian aContract aAct, a1872 abound athe abailor awith acertain aduties ato
adisclose athe alatent afacts aspecifically apertaining ato adefect ain agoods. aBailor’s aduty aof

adisclosure aare:

Page 16
Gratuitous aBailment: aIt ais athe aduty aof athe abailor ato adisclose aall athe adefects ain athe agoods
athat ahe ais aaware aof ato athe aBailee athat acan ainterfere awith athe ause aof agoods aor acan aexpose

ahim ato aextraordinary arisks. aAnd afailure ato ado athe asame awill amake abailor aliable afor

adamages.

Non aGratuitous aBailment a(Bailment afor aReward): aThis aduty aparticularly adeals awith athe
agoods agiven aon ahire. aAs aper athis aprovision, awhen athe agoods aare abailed afor ahire, athen ain

asuch aa asituation aeven aif athe abailor ais aaware aof athe adefect ain athe agoods aor anot awill abe

aheld aliable afor athe ainjury athat ahas abeen acaused adue ato athe aexistence aof asuch adefect.

In aHyman av aNye a& aSons, athe aplaintiff atook aa acarriage aon ahire afrom athe adefendant abut
athe acarriage awas anot afit afor athe ajourney aand asubsequently, athe aplaintiff asuffered ainjuries.

aThe acourt aheld athat aeven athough athe adefendant awas aaware aof asuch adefect aor anot ahe ashall

abe aliable. a

Duties aof aBailee

Bailee ahas ato afulfil aseveral aobligations aas aper aIndian aContract aAct, a1872. aThat ais:

• Duty ato atake areasonable acare: aIt ais athe aduty aof athe aBailee ato atake acare aof agoods
aas ahis aown agoods. aHe ashall aensure aall asafety ameasures athat aare anecessary ato

aprotect athe agoods. aThe astandard aof acare ashould abe asuch aas ataken acare aby aa

aprudent aman. aThe agoods ashall abe ataken acare aof aequally awhether athey aare

agratuitous aor anon-gratuitous. aThe aBailee ashall abe aheld aliable afor apayment aof

acompensation aif ahe afails ato atake adue acare. aBut aif athe aBailee ahas ataken adue acare

aand ainstead aof athat athe agoods aare adamaged athen ain asuch aa asituation aBailee awill

anot abe aliable ato apay acompensation. aThe aBailee ais anot aliable afor athe aloss aof agoods

adue ato adestruction aby afire. a(Section a151-152)

• Duty anot ato amake aunauthorized ause aof athe agoods: aBailee ais aduty abound ato ause athe
agoods afor aa aspecific apurpose aonly aand anot aotherwise. aIf ahe auses athe agoods afor

Page 17
 aany aother apurpose athan awhat ais aagreed afor athen athe abailor ahas athe aright ato

aterminate asuch abailment aor ais aentitled awith acompensation afor adamage acaused adue

ato aunauthorized ause. a(Section a153-154)

• Duty anot ato amix abailor’s agoods awith ahis aown agoods: aIt ais athe aduty aof athe aBailee
anot ato amix abailor’s agoods awith ahis aown. aBut aif ahe awants ato ado athe asame athen ahe

ashall aseek aconsent afrom athe abailor afor amixing aof agoods. aIf athe abailor aagrees afor

athe amixing aof athe agoods athen athe ainterest ain athe amixed agoods ashall abe ashared ain

aproportion. aIn acase, aBailee awithout athe aconsent aof abailor amixes athe agoods awith

ahis aown athen atwo asituations aarise: agoods acan abe aseparated aand agoods acan’t abe

aseparated. aIn athe aformer acase athe aBailee ahas ato abear athe acost aof aseparation aand

ain athe alatter acase asince athere ais athe aloss aof athe agoods, atherefore, abailor ashall abe

aentitled awith adamages aof asuch aloss. a(Section a155-157)

• Duty ato areturn athe agoods aon athe afulfilment aof apurpose:Bailee ais aduty abound ato
areturn athe agoods aonce athe apurpose ais aachieved aor aon athe aexpiry aof athe atime

aperiod afor awhich athe agoods awere abailed. aBut aif athe aBailee amakes adefault ain

areturning athe agoods aon aproper atime athen ahe awill abe aresponsible awith athe aloss,

adestruction aor adeterioration aof athe agoods aif aany. a(Section a160-161). aIn athe acase

aof aBank aof aIndia av. aGrains a& aGunny aAgencies 8 , athe acourt aheld athat aif athe

agoods aare alost aor adestroyed adue ato athe anegligence aof aservant aof aBailee, athen ain

asuch acase aas awell aBailee ashall abe aliable. a

• Duty ato adeliver ato athe abailor aincrease aor aprofit aif aany aon athe agoods abailed: aThe
aBailee ahas aa aduty ato areturn athe agoods aalong awith aincrease aor aprofit asubject ato

acontract ato athe acontrary. aAccretion athat ahas aaccrued afrom athe abailed agoods ais athe

apart aof athe abailed agoods aand atherefore abailor ahas athe aright aover asuch aaccretions

aif aany. aAnd asuch aaccretions ashall abe ahanded aover ato athe abailor aalong awith athe

8
aAIR a1989 aMP a28

Page 18
 agoods abailed. aFor ainstance, aA aleaves aa acow ain athe acustody aof aB aand acow agives

abirth ato athe acalf. aThen aB ais aduty abound ato ahand aover athe abailed agoods aalong

awith aaccretion ato athe abailor. a(Section a163)

Rights aof aa aBailor

As asuch aIndian aContract aAct, a1872 adoes anot aprovide afor aRights aof aa aBailor. aBut aRights
aof aa aBailor ais asame aas aDuties aof athe aBailee ai.e. aRights aof aBailor a= aDuties aof aBailee. aSo

athe arights aof abailor aare:

Enforcement aof aBailee’s aDuty:Since aRight aof athe abailor ais asame aas athe aright aof athe
aBailee, atherefore aon athe afulfilment aof aall aduties aof aBailee athe abailor’s aright ais

aaccomplished. aFor aexample, ait ais athe aduty aof athe aBailee ato agive athe aaccretions aand ait ais

athe aright aof abailor ato ademand athe asame.

Right ato aclaim adamages: aIf athe aBailee afails ato atake acare aof athe agoods, athe abailor ahas athe
aright ato aclaim adamages afor asuch aloss. a(Section a151)

Right ato aTermination athe aContract: aIf athe aBailee adoes anot acomply awith athe aterms aof athe
acontract aand aacts ain aa anegligent amanner ain asuch acase athe abailor ahas athe aright ato arescind

athe acontract. a(Section a153)

Right ato aclaim acompensation: aIf athe aBailee auses athe agoods afor aan aunauthorized apurpose
aor amixes athe agoods awhich acause aloss aof agoods ain asuch acase abailor ahas athe aright ato

aclaim acompensation.

Right ato ademand athe areturn aof agoods: aIt ais athe aduty aof athe aBailee ato areturn athe agoods
aand athe abailor ahas athe aright ato ademand athe asame.

Rights aof aa aBailee

Page 19
Right ato arecover aexpenses: In athe acontract aof aBailment, athe aBailee aincurs aexpenses ato
aensure athe asafety aof agoods. aThe aBailee ahas athe aright ato arecover asuch aexpenses afrom athe

abailor. a(Section a158)

Right ato aremuneration: aWhen athe agoods aare abailed ato athe aBailee ahe ais aentitled ato areceive
acertain aremuneration afor aservices athat ahe ahas arendered. aBut ain acase aof agratuitous

abailment, athe aBailee ais anot aawarded aany aremuneration.

Right ato arecover acompensation: aAt atimes aa asituation aarises awherein abailor adid anot ahave
athe acapacity ato acontract afor abailment. aSuch aa acontract acausing aloss ato athe aBailee,

atherefore athe aBailee ahas athe aright ato arecover asuch acompensation afrom athe abailor.

a(Section a168)

Right ato aLien: aBailee ahas athe aright aover aLien. aBy athis, awe amean athat aif athe abailor afails
ato amake apayment aof aremuneration aor adoes anot apay athe aamount adue, athe aBailee ahas athe

aright ato akeep athe agoods abailed ain ahis apossession atill athe atime adebtor adues aare acleared.

aLien ais aof atwo atypes: aparticular alien aand ageneral alien. a(Section a170-171)

In athe acase aof aSurya aInvestment aCo. av. aS.T.C, athe acourt aheld athat aexpenses aincurred aby
aBailee aduring apreservation aof agoods aunder alien ashall abe aborne aby abailor. a

Right ato asuit aagainst aa awrongdoer: After athe agoods ahave abeen abailed aand aany athird aparty
adeprives athe aBailee aof ause aof asuch agoods, athen athe aBailee aor abailor acan abring aan aaction

aagainst athe athird aparty. a(Section a180)

PLEDGE a

Pledge ais aa akind aof abailment. aPledge ais aalso aknown aas aPawn. aIt ais adefined aunder asection
a172 aof athe aIndian aContract aAct, a1892. aBy apledge, awe amean abailment aof agoods aas aa

asecurity afor athe arepayment aof adebt aor aloan aadvanced aor aperformance aof aan aobligation aor

apromise. aThe aperson awho apledges athe agoods aas asecurity ais aknown aas aPledger aor aPawnor

Page 20
aand athe aperson ain awhose afavour athe agoods aare apledged ais aknown aas aPledgee aor aPawnee.

Essentials aof aPledge

Since aPledge ais aa aspecial akind aof abailment, atherefore aall athe aessentials aof abailment aare
aalso athe aessentials aof athe apledge. aApart afrom athat, athe aother aessentials aof athe apledge aare:

There ashall abe aa abailment afor asecurity aagainst apayment aor aperformance aof athe apromise,

The asubject amatter aof apledge ais agoods,

Goods apledged afor ashall abe ain aexistence,

There ashall abe athe adelivery aof agoods afrom apledger ato apledgee,

There ais ano atransfer aof aownership ain acase aof athe apledge.

Exception: aIn aexception acircumstances apledgee ahas athe aright ato asell athe amovable agoods
aor aproperty athat aare abeen apledged.

Rights aof aPawnor

As aper aSection a177 aof athe aIndian aContract aAct, a1872 athe aPawnor ahas athe aRight ato
aRedeem. aBy athis, awe amean athat aon athe arepayment aof athe adebt aor athe aperformance aof athe

apromise, athe aPawnor acan aredeem athe agoods aor aproperty apledged afrom athe aPawnee abefore

athe aPawnee amakes athe aactual asale. aThe aright aof aredemption ais aextinguished aonce athe

aactual asale ais adone aby athe aPawnee aas aper ahis aright aunder asection a176 aof athe aIndian

aContract aAct, a1872. a

Rights aof aa aPawnee

The arights aof athe aPawnee aas aper aIndian aContract aAct, a1872 aare:

Page 21
 • Right ato aretain athe agoods: aIf athe aPawnor afails ato amake athe apayment aof aa adebt
aor adoes anot aperform aas aper athe apromise amade, athe aPawnee ahas athe aright ato aretain

athe agoods apledged aas asecurity. aMoreover, aPawnee acan aalso aretain agoods afor anon-

payment aof ainterest aon adebt aor anon-payment aof aexpenses aincurred. aBut aPawnee
acannot aretain agoods afor aany aother adebt aor apromise aother athan athat aagreed afor ain

athe acontract. a(Section a173-174)

• Right ato arecover aextraordinary aexpenses: aThe aexpenses aincurred aby aPawnee aon
athe apreservation aof agoods apledged acan abe arecovered afrom aPawnor. a(Section a175)

• The aright aof asuit ato aprocure adebt aand asale aof apledged agoods: aOn athe afailure
ato amake arepayment ato aPawnee aof athe adebt, athe aPawnee ahas atwo aright: aeither ato

ainitiate asuit aproceedings aagainst ahim aor asell athe agoods. aIn athe aformer acase, athe

aPawnee aretains athe agoods awith ahimself aas acollateral asecurity aand ainitiate athe acourt

aproceedings. aHe aneed anot aprovide aany anotice aof asuch aproceedings ato athe aPawnor.

aAnd ain athe alatter acase, athe aPawnee acan asell athe agoods aafter agiving adue anotice aof

asale ato athe aPawnor. aIf athe aamount areceived afrom athe asale aof agoods ais aless athan

athe aamount adue athen athe arest aamount acan abe arecovered afrom aPawnor. aAnd aif athe

aPawnee agets amore aamount athan athe adue aamount athen asuch asurplus ais ato abe agiven

aback ato aPawnor. a(Section a176)

CONTRACT aOF aAGENCY a

“Agency ais aa arelationship awhich aexists awhere aone aperson a(the aprincipal) aauthorizes
aanother a(the aagent) ato aact aon ahis abehalf, aand athe aagent aagrees ato ado aso.” a

While athe acontract aof aagency ahas abeen avery adiligently aexplained aunder achapter a10
a(section a182-238) aof athe aIndian aContract aact, a1872 aand aby athe aHon’ble acourts aof ajustice,

atime aand aagain; aA acontract aof aagency, ain aits aessence, ais anothing abut aa afiduciary

arelationship abetween atwo aparties awhere aone aparty a(the aprincipal) acontracts-with aand

Page 22
aauthorizes a(implicitly aor aexplicitly) aanother aperson a(the aagent) ato aact aon ahis abehalf aand

aprovides ahim awith athe acapacity ato acreate alegal arelationships abetween athe aprincipal aand

athird aparties. a

Principal aand aAgent

The aterms aPrincipal aand aagent ahave abeen adefined aunder aSec. a182 aof athe aIndian aContract
aAct, a1872. aThe aact adefines aan aagent aas aan aindividual awho ahas abeen aemployed aby

aanother ato aact/deal aon abehalf aof ahim aand athe aperson awho aemploys athe aagent, ai.e., athe

aperson awhom athe aagent arepresents ais acalled athe aprincipal. a

An aagent ain aits aessence ais aan aindividual awho, aacting aat ahis adiscretion aand ajudgment, ahas
athe aability ato amake athe aprincipal adirectly aliable ato athird aparties, ai.e., aenable athe aprincipal

ato asue aor abe asued aby aany athird aparty adirectly. a

The aagent amay aor amay anot aalways abe adirectly aemployed aby athe aprincipal ahimself, ai.e.,
athe arelationship abetween athe aprincipal aand athe aagent amay anot aalways aarise aout aof aa

acontractual arelationship, athere amight abe adifferent asituations athat agive arise ato athe acontract

aof aagency, asituations alike aa anecessity, athrough aan aobligation aattributed aupon aa aperson aby

alaw aor aotherwise. a

But ainconsiderate aof ahow athe aprincipal-agent arelation ais aformed, ait acan anot abe aformed
awithout athe aessential aelement aof aconsent. aHere athe aconsent agiven aneed anot abe aexplicit, ait

amay anot aeven ain aall acases abe agiven aexplicitly afor aforming athe acontractual aprincipal-agent

arelationship. aThe acourt aof alaw apresumes athe aconsent afor athe aformation aof aa acontractual

arelationship aif athey ahave aconsented ato aa asituation athat awould ahave ain aany away

aestablished athe acontractual aprincipal-agent arelationship; aeven aif athe a‘principal’ aand athe

a‘agent’ astay aadamant aon anot aaccepting athe aassociation. a

Essentials: aContract aof aAgency

Page 23
The aSpecial aContract aof aAgency ahas abeen adefined aunder aChapter a10 a(section a182-238) aof
athe aIndian aContract aAct, a1872; awhere abeyond athe ageneral aessentials a(section a10)

aprovided afor aa acontract, athe aAct aalso alays adown acertain aspecific aprinciples aand aessentials

afor athe aSpecial aContract aof aAgency. a

The amajor aessentials ato athe acontract aof aagency ainclude:

• Competency aof athe aPrincipal a

The arequirement afor athe acompetency aof athe aprincipal ahas abeen arepeated a(as aSec.10 aof athe
a“act” aalso arequires afor a“parties acompetent ato acontract”) aand alaid adown ain athe aIndian

aContract aAct aunder asec. a183, awhere athe arequirements afor aa acompetent aprincipal ahave

abeen alisted adown ato; a

Majority, ai.e. athe aprincipal amust ahave aattained athe aage aof amajority, aunder athe arelevant
alaws.

Sound amind, ai.e. athe aprincipal amust abe aof asound amind, aat aleast aat athe amoment aof
aappointing athe aagent. a

The abasic arule aof athumb ahere ais athat athe aprincipal ashould abe acapable aof aperforming athe
atasks a(in alaw), awhich ahe awants ahis aagent ato ado afor ahim. aThus aany aappointment aof aan

aagent aby aa aminor aor aa aperson aof aunsound amind ais aexplicitly adeclared ato abe avoid.

• Competency aof athe aAgent

The arequirements aregarding athe acompetency aof athe aagent ahave abeen alisted adown ain aSec.
a184 aof aICA, a1872, awhere ait ahas abeen aexplicitly amentioned athat aanyone abetween athe

aprincipal aand athe athird aparty amay abecome aan aagent, aregardless aof aits aage aor asoundness

aof ahis amind. aIt aprescribes athat aany aperson, aincluding aa aminor aand aan aunsound aperson,

amay abecome aan aagent. aHowever, athey a(the aagent) amay anot abe aliable ato athe aprincipal

aunless athey ahave aattained athe aage aof amajority aand aare aof asound amind. a

Page 24
From athe ageneral adescription aprovided aunder athe asection, ait acan abe ainterpreted athat, aany
aperson, aincluding aones awho athemselves amight anot abe acompetent aenough ato acontract

a(minors aand apersons aof aunsound amind aincluded), ahave athe acapacity ato arepresent aand abind

atheir aprincipals ainto adirect aand avalid acontractual arelationships. a

• Consideration anot arequired a

As aper athe aview aof athe aIndian aContract aAct, aeven aconsideration ais anot aan aessential
aelement afor athe acreation aof aan aAgency; ahence ano aconsideration ais arequired ato abe

apresented awhile athe aformation aof aan aagency. a

However, athese aprovisions ado anot adeprive athe aagent aof ahis alegal aand ajustified
aremunerations aunless aproven ato abe aspecified aotherwise ain athe acontract. a

These aprinciples aof athe acontract aact aare abased aupon athe aideologies aof aCommon aLaw,
awhich aspecify athat ano aconsideration ais arequired ato agive aan aindividual athe aauthority aof aan

aagent, aneither adoes ait abar aany aone aof athe aparties afrom asuing aeach aother, aeither ait abe afor

athe anegligence aon apart aof athe aagent aor afor athe arecovery aof adue acompensation afrom athe

aprincipal. a

SOME LANDMARK CASE LAWS

1. P.J. Rajappan v Associated Industries9 (1983) – Contract of guarantee

FACTS

9
S.A. No. 245 of 1983

Page 25
The guarantor, having not signed the contract of guarantee, wanted to wriggle out of the
situation. He said that he did not stand as a surety for the performance of the contract. Evidence
showed the involvement of the guarantor in the deal and had promised to sign the contract later.

ISSUE INVOLVED

Whether this is a valid contract of guarantee or not?

LEGAL PROVISION

SECTION 126 OF INDIAN CONTRACT ACT, 1872

JUDGEMENT

The Kerala High Court held that a contract of guarantee is a tripartite agreement, involving the
principal debtor, surety and the creditor. In a case where there is evidence of the involvement
of the guarantor, the mere failure on his part in not signing the agreement is not sufficient to
demolish otherwise acceptable evidence of his involvement in the transaction leading to the
conclusion that he guaranteed the due performance of the contract by the principal debtor. When
a court has to decide whether a person has actually guaranteed the due performance of the
contract by the principal debtor all the circumstances concerning the transactions will have to
be necessarily considered.

2. GAJAN MORESHWAR vs. MORESHWAR MADAN 10 1942- Contract of

Indemnity

FACTS

G.Moreshwar got a piece of land in then Bombay at lease for a long period. He transferred the
lease to M.Madan for a limited period. M.Modan started development over the above-

10
(1942) 44 BOMLR 703

Page 26
mentioned plot and ordered his supplies from K D Mohan Das. When Mohandas asked for the
payment for the material he provided, the accused could not pay up. Upon request of M Madan,
G Moreshwar prepared a mortgage deed in favour of K.D. Mohandas. The Interest rate was
agreed upon, and G. Moreshwar put a charge over his possessions. A date was pre-decided for
the return of principal amount. M. Madan had decided to repay the principal amount along with
interest and to get the mortgage deed released before a particular date. But M. Madan as per his
assurance did not pay anything to K.D. Mohan Das, and G. Moreshwar had to pay some interest.
When after several requests and intimations, M. Madan did not pay the principal amount along
with interest and also didn’t get the mortgage deed released, G. Moreshwar legally prosecuted
M. Madan for indemnity.

ISSUE INVOLVED

Whether this is a valid contract of indemnity?

LEGAL PROVISION

SECTION 124 OF INDIAN CONTRACT ACT, 1872

JUDEMENT

The Privy Council held that if indemnity holder has incurred responsibility and the
responsibility itself is absolute and without limits, the indemnity holder can ask the indemnifier
to take care of the liability and pay it off. Thus, G. Moreshwar was designated to be indemnified
by M. Madan against all debt under the loan agreement and deed of charge.

3. Atul Mehra v Bank of Maharastra11 – Contract of Bailment

FACTS

11
AIR 2003 P H 11

Page 27
Atul Mehra had hired a locker at Bank of Maharashtra. He had deposited jewellery in the said
locker the value of which he claimed as Rs 4,26,160. The strong room in which the locker was
located was broken in and the contents thereof were stolen by miscreants.

ISSUE INVOLVED

Whether this would constitute a contract of indemnity?

LEGAL PROVISON

SECTION 148 OF INDIAN CONTRACT ACT, 1872

JUDGEMENT

The court held that exclusive possession of the goods is sine qua non for bailment. Therefore,
mere hiring of a locker would not be sufficient to constitute a contract of bailment as provided
under Section 148 of the Indian Contract Act, 1872. Further, the court said that the question of
reasonable care and quantum of damages would arise only after it has been shown that actual
exclusive possession of the property was given by the bailee to the bailor, i.e. the bank. Since
the bank was not aware of the contents of the locker, hence it was impossible to know the
quantity, quality or the value of the jewellery that was allegedly kept in the locker at the time
when the robbery occurred

4. Chairman L.I.C v. Rajiv Kumar Bhaskar12- Contract of Agency

FACTS

In this case, as per the salary saving scheme of L.I.C, the employer was supposed to deduct the
premium from the employee’s salary and deposit it with L.I.C. Upon the death of the employee,
it was found by his heirs that the employer has defaulted in doing so, causing the policy to lapse.

12
2003 ACJ 86

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A clause in the acceptance letter was referred to, in which the employer had said that he would
act as the agent of the employee and not as that of L.I.C.

ISSUE INVOLVED

Whether this is a contract of agency?

LEGAL PROVISION

SECTION 182 OF INDIAN CONTRACT ACT, 1872

JUDGEMENT

It was held that the employer was acting as the agent of the company, thereby making the
company (L.I.C) responsible as a Principal due to the fault of the Agent (the employer).

5. Lallan Prasad v. Rahmat Ali & Anr.- Contract of Agency13

FACTS

The appellant advanced Rs. 20,000 to the first respondent against a promissory note and a
‘receipt. The first respondent executed an agreement whereby he agreed to pledge as security-
for the debt aeroscapes, to deliver them to the appellant, and to keep them in the appellant’s
custody. The appellant filed a suit on the promissory note claiming that the first respondent
failed to deliver the goods, that the agreement therefore did not ripen into a pledge, and that
consequently, he was entitled to recover the amount advanced by him. It was found on the
evidence that the goods were delivered to the appellant, and that he was it pledgee thereof.

ISSUES INVOLVED

13
1967 SCR (2) 233

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Whether the first respondent pledged aeroscraps and delivered possession thereof to the
appellant?

Whether the appellant was entitled to any relief when his case was that the first respondent
never delivered to him the said goods and the said agreement never ripened into a pledge?

LEGAL PROVISION

SECTION 172-179 OF INDIAN CONTRACT ACT, 1872

JUDGEMENT

The High Court held that the said goods were delivered to the appellant, that the said agreement,
did not rest at a mere agreement to pledge but ripened into a pledge, and that the appellant was
not entitled to any relief in view of his, stand that the said goods were never pledged with him
and were therefore not in his possession. As a result, the High Court dismissed the appellant’s
suit with costs.

CONCLUSION

Special contracts are contained in sections 124 to 238 of the Indian Contract Act. These special
contracts are Indemnity, Guarantee, Bailment, Pledge and Agency. The contract of indemnity
and guarantee are the special types of contract which help from protection against loss in the
form of a promise to pay for loss of money or goods. Section 124 to 147 of the Indian Contract
Act, 1872 discuss about contract of Indemnity and Guarantee. Through this research, the
researcher explained the kinds of guarantee and also the concept of surety and creditor. The
concept of special type of contract indemnity and guarantee, bailment and pledge as stipulated
under the Indian Contract Act, 1872 and its importance was thoroughly stated.

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