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Month: May 2022

CONTRACT OF AGENCY

Since it is not always possible for a person to do everything by himself, it becomes necessary to delegate some of the acts to be performed by another person. Such another person is called an agent. The person represented is called the principal. The law relating to agency is contained in Chapter X (Sections 182 to 238) of the Indian Contract Act, 1872

MEANING OF CONTRACT OF AGENCY

By a contract of agency, a person employs another person to do any act for him or to represent him in dealing with third persons so as to bind himself by the acts of such another person.

The law of agency is based on the following general rules:

(i)  Whatever the principal can do by himself, he may get the same done through an agent, except when the act involved is of personal nature e.g. the principal canÂŹnot ask his agent to become insolvent on his behalf or to marry on his behalf.

(ii)  What a person does by another, he does by himself. Thus, the acts of the agent are the acts of the principal.

AGENT

Meaning of an Agent [Section 182]

An agent is a person employed to do any act for another or to represent another in dealings with third persons. Thus, an agent establishes a contract between such another person and third person.

Who May be an Agent [Section 184]

As between the principal and third persons, any person (whether he has contractual capacity or not) may become an agent. Thus, a minor or a person of unsound mind can also become an agent.

Agent’s Responsibility to his Principal (Section 184]

An agent who is not of the age of majority and of sound mind is not responsible to his principal.

Example X hands over to Y, a minor, a TV set worth As 18,500 and instructs him not to sell below Rs 19,000. Y sells the same to Z for Rs 18,000. X will be responsible to Z for the act of Y but Y himself will not be responsible to X since he has no contractual capacity.

Distinction between an Agent and Servant

Basis of distinctionAn agentServant
1. Authority to create contractual relationshipHehastheauthoritytocreate contractual relationshipbetween the principal and a third party.He ordinarily has no such authority.
2. Work of several personsHe may work for several principals at a time.He ordinarily works only for one master.
3. RemunerationHe usually gets commission..He usually gets salary orwages.

Distinction between an Agent and Independent Contractor

Basis of distinctionAn agentIndependent contractor
1. Control and supervisionHe works under the control and
supervision of the principal.		He works independently of the
control of the person for whom he does the work.
2. Personal liabilityHe is not personally liable for allacts done by him within the scope of his authority.He is personally liable for all acts done by him.
3. RemunerationHe usually gets commission.He   usually   gets the    fixed contracted amount or amount at afixed contracted rate.

Modes of Discharge of Surety’s Liability

In a contract of guarantee, a surety undertakes to pay the amount to the creditor in case the principal debtor is not able to pay the amount. The Indian Contract Act, 1872 through its different provisions ensures that it protects the interest of all the parties in a contract of guarantee, especially the interests of the surety. It may happen that initially when the contract of guarantee had been entered into, the contract was not entirely based on good faith. However, after entering into such a contract, our legal system makes it a point that good faith is imposed on the creditor.  It also ensures that there is no ambiguity related to the rights and liabilities of the surety.

Surety

A surety is a person or an organization that guarantees to pay the sum of money to the creditor in an instance where the principal debtor makes a default or is not able to pay. A surety is also called the ‘guarantor’. When the principal debtor fails to pay his debts, a surety assumes upon himself, the responsibility to pay the debts of the principal debtor. Section 126 of ICA, also defines the term ‘surety’ while defining the contract of guarantee. In a contract between two parties, where one party questions the ability of the other party to satisfy the requirements of the contract, a presence of surety is very common. A lender, in order to reduce risk, may require the debtor with a surety while entering into a contract. Therefore, a surety takes all the responsibility to pay the debts of the principal debtor if he is unable to pay them.

A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.

Discharge of surety

The Indian Contract Act, 1872 provides for the discharge of the liability of surety, in case of certain given circumstances. A surety is said to discharge from his liability if his liability to perform the promise, in case of a default by the principal debtor, comes to an end.  A surety is considered as a ‘favored debtor’ and the liability of a surety can be discharged or released. Discharge of surety’s liability means that the liabilities of the surety have come to an end and he is no longer under any obligation. A surety may be discharged or released from his liabilities by any agreement, operation of law, the performance of the principal debtor’s act, payment of principal debtor’s debt, or by any breach on the part of the creditor in the contract of guarantee. The ICA incorporates certain circumstances under which the surety is discharged from its liabilities. These circumstances are provided under Sections 130-144. They can be enclosed under the following heads:-

¡         Discharge by Revocation

¡         Discharge by Conduct

¡         Discharge by Invalidation of a Contract

1.DISCHARGE OF SURETY BY REVOCATION:(1) Revocation of surety by giving a notice (sec-130):A specific guarantee cannot berevoked by the surety if the liability has already accrued. A continuing guarantee may at anytime, be revoked by the surety, as to future transactions, by giving notice to the creditor. Butthe surety remains liable for transactions already entered into.

(2) Revocation by Death (sec-131):The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.. The effect of the death of the surety is that it results in automatic revocation of the guarantee as to future transactions. But such revocation does not affect the transactions which were executed prior to the death of the surety.For example:in a contract of guarantee, it is mentioned that on the death of the surety, his property or his legal representatives will be responsible for such liability, in such a case, e guarantee is not revoked even if the surety dies.

Eg: A owes money to B under a contract. It is agreed between A, B and C, that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.

3.Discharge by Invalidation of a Contract.

According to Section 142 of The Indian Contract Act, any Guarantee obtained by misrepresentation is invalid. Section 142 runs as follows:
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.

Eg: C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a mortgage of B’s furniture. C, cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

Conclusion

The Indian Contract Act, 1872 provides for the discharge of the liability of surety in case of certain given circumstances with the objective of securing the interests of the surety, who guarantees payment of the debt in case of a default. The situation under which the surety can be discharged from his liability can be categorised into three different heads i.e. by revocation, the conduct of the parties and invalidation of the contract.

 DIFFERENCE BETWEEN INDEMNITY & GUARANTEE

BASIS   CONTRACT OF INDEMNITYCONTRACT OF GUARANTEE
1 DefinitionSection 124 of ICA,
“A contract by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any person is called a contract of Indemnity”		Section 126 of ICA
“contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.

1. partiesThere are two parties-indemnifierand the indemnity-holder.There are three parties-principaldebtor, creditor and surety.
2. contractsThere is only one contract between indemnifier and indemnity-holder.There are three contracts, one between creditor and principal debtor, second between surety and principal debtor, and thirdbetween surety and the creditor
3.UndertakingThe indemnifier undertakes to save the indemnity-holder from any loss.The surety undertakes for thepayment of debts of principal debtor.
4. Nature of liabilityThe liability of indemnifier is primary and unconditionalThe liability of surety is secondary and conditional. Surety’s liability is secondary in the sense that the primary liability is of principal debtor. Surety’s liability is conditional in the sense that it arises only on default of principalDebtor
5. Nature of event.The liability arises only on the happening of a contingency.The liability arises only on the. non-performance of an existing promise or non-payment of an existing debt.
6. RequestThe indemnifier need not act at therequest of indemnity-holder.The surety acts at the request of theprincipal debtor.
7. Right to sueThe indemnifier cannot sue a third party in his own name because of absence of privity of contract between him and a third party. He can sue the third party in his own name if there in an assignment inhis favour.A surety, on discharging the debt of principal debtor, can sue ‘the principal debtor in his own

Types of Guarantee

A contract of guarantee could also be for an associate in nursing’s existing liability or future liability. A contract of guarantee may be a particular guarantee (for any specific dealings only) or a continued guarantee.

There are two sorts of guarantee contracts:

specific guarantee and an ongoing guarantee. A specific or simple guarantee is one that is made in respect of a single debt or unique transaction and is set to expire when the guaranteed debt is paid or the promise is fulfilled. An ongoing guarantee, on the other hand, is a guarantee that covers a series of transactions (Section129). In this instance, the surety’s liability would remain until all of the transactions were completed or the guarantor revoked the guarantee for future transactions.

Specific Guarantee 

A particular guarantee is for one debt or any specific dealings. It involves associates finishing once such debt has been paid.Continuing GuaranteeAct in 1872 defines 

Continuing Guarantee- 

A continuing guarantee is a form of assurance that covers many transactions. Until the surety revokes it, it applies to all transactions engaged into by the principal debtor. As a result, bankers prefer a continuing guarantee because the guarantor’s duty is not limited to the original advances and extends to all subsequent defaults.

A continuing guarantee’s most crucial feature is that it applies to a succession of separate, independent transactions (series of transactions). As a result, a promise for the full consideration cannot be considered a continuing guarantee

.A continuing guarantee applies to any or all the transactions entered into by the principal mortal till it’s revoked by the surety. a seamless guarantee may be revoked anytime by the surety for future transactions by giving notice to the creditors. However, the liability of a surety isn’t reduced for transactions entered into before such revocation of guarantee.

Illustration-

a) S is a bookseller who gives P a collection of books with the understanding that if the person P is not able to pay for the books, his or her friend X will. This is a contract of particular guarantee, and K’s liability ends the minute S receives payment for the books.

b) A wealthy landlord hires P as his estate manager after M recommends him. P was responsible for collecting rent from S’s renters each month and remitting it to S by the 15th of each month. M, as the guarantee, undertakes to make good on any defaults made by P. This is a contract with a long-term guarantee.

Revocation of Continuing Guarantee

It must be agreed upon by all three parties – All the three parties to the transaction that are the principal debtor, creditor, and surety, must consent with each other’s approval. It is to be noted that  the surety will only accept for the major debtor’s debt if the principal debtor expressly demands it. Now the outcome is that the primary debtor must interact with the surety. The surety’s communication with the creditor guarantee transaction without informing the primary debtor does not constitute a guarantee contract.

Take into account anything done for the benefit of the principal debtor is to the surety for delivering the guarantee. The consideration from the creditor, not one from the past. It is not necessary for the guarantor to receive any value, and sometimes what happens is even the creditor’s tolerance in the event of default is sufficient consideration.

Accountability – A surety’s liability is secondary under a guarantee arrangement. This tells that the primary contract was between the creditor and the principal debtor. The surety is solely responsible for repayment if the principal debtor defaults.

Assume the presence of a debt – The fundamental purpose of a guarantee contract is to ensure the payment of the major debtor’s obligation. if there is no such debt. As a result, in circumstances where the debt is time-barred or void, the surety has no duty. In the Scottish case the House of Lords concluded that there can be no legitimate guarantee if there is no principal obligation.

It must include all of the fundamental elements of a legitimate contract as the  guarantee contract is an agreement, it must meet all of the standards as a legal contract. 

No False Information – Any circumstances that may affect the surety’s obligation must be disclosed by the creditor to the surety. The confidence gained through the concealment of such knowledge is invalid. As a consequence, if a creditor secures such guarantee by omitting substantial information, the guarantee will be null and unenforceable.

There will be no misrepresentation – This to be noted that the guarantee shouldn’t be acquired by misrepresenting the facts to the surety. It does not require  the primary debtor even while it is not a contract of Uberrima fides, or ultimate good faith.

Define Surety

Surety: A surety could be a person giving a guarantee during a contract of guarantee. Someone who takes responsibility to pay cash performs any duty for one more person just in case that person fails to perform such work.

A surety is not an insurance policy. The payment made to a surety firm pays for the bond, but the principal remains responsible for the debt. The surety is only necessary to relieve the obligee of the time and money that shall be utilised to recover from any loss or damage. The balance of the claim is also recovered from the principal by any collateral placed by the principal or by other means.

A surety cannot be treated as a bank guarantee. A surety is liable for any performance risk shown by a principal; the bank guarantee is liable only for the financial risk of a contracted project.

The surety is the entity offering a credit line to guarantee the payment on the demand. They give the oblige a financial guarantee that the principal will meet his obligations. Obligations of a principal may means compliance with state laws and regulations relating to a specific business license, or compliance with the terms of a construction contract.

If the principal fails to deliver on the terms of the contract signed with the obligee, an obligee shall be entitled to lodge a lawsuit against the bond in order to recover any damages or losses suffered. If the claim is legitimate, the insurance provider must pay reparation, which can not surpass the value of the bond. The underwriters would then expect the principal to pay them back on any fees they might have made.

Surety’s Liability: 

According to section 128 of Indian Contract Act, 1872, the liability of a surety is co-extensive of principal debtor’s unless the contract provides.

Liability of surety is the same as that of the principal mortal. A human will directly proceed against the surety. A human will sue the surety directly while not suing principal mortals.Surety becomes susceptible to build payment instantly once the principal mortal makes default in such payment.

However, primary liability to form payment is of the principal mortal, surety’s liability is secondary. Also, wherever the principal mortal can’t be commanded to blame for any payment thanks to any defect in documents, then surety is additionally not answerable for such payment.

Difference between guarantees and sureties

Guarantees and sureties are two instruments that parties use to offer each other more security and comfort. Although they are often used interchangeably, the obligations of the principal, the beneficiary and the guarantor are very different. They are therefore two different legal entities, each with its own rights and obligations for the parties involved.

A surety holder follows

A surety is an accessory security for a main obligation. This means that a surety follows the main obligation. The guarantor, an insurer or a bank, promises the same performance as the principal debtor. The object of a surety is therefore the performance of the obligation towards the principal. The guarantor is only obliged to do so within the limits of the main obligation.

Concretely, a surety can only exist for a valid agreement. The guarantor can therefore invoke all the exceptions of the principal debtor. This also means that when a surety is used, the guarantor can oppose the payment in case of disagreement and will only proceed with the payment when there is a final judicial decision in favour of the beneficiary, or when the principal has failed and is no longer able to perform his obligations.

A guarantee stands alone

A guarantee is an independent, abstract own commitment of the insurer or bank that is separate from the main obligation. This is a big difference with a surety and means that the guarantor cannot invoke the exceptions of the principal debtor based on the underlying contract. Even if the underlying obligation is null, the guarantor has to fulfil its obligation. Only in case of manifest abuse of rights (very narrowly interpreted) the guarantor can refuse to pay the guarantee formally called correctly.

The guarantee thus has both a collateral function and a payment function if called on first demand.

On first demand

Sureties as well as guarantees can be given on first demand. However, given the nature of the commitment, this ‘first demand’ is more and better used in a guarantee agreement. There it replaces the deposit-guarantee and the guarantor cannot obtain repayment from the beneficiary, but only from the originator.

First demand for of a surety means ‘pay first, and then recover’. In that case, there is a reversal of position in the process and a reversal of the burden of proof. The beneficiary, with the sum of money in hand, steps into the role of defendant.

When to use a surety and when a guarantee?

It is clear that a guarantee is more risky for a principal because no link exists with any breach of the guaranteed contract. In any case, the guarantor will pay and all the principal can do is turn to the beneficiary afterwards in order to obtain reimbursement through the courts of any amounts that may not have been due.

As the principal, therefore, be cautious and try to avoid effectively issuing a guarantee during the contract negotiations or try to include in the guarantee text a number of conditions of the underlying contract that must be met in order for the guarantor to pay out. If there is trust between the two contracting parties, a surety, possibly on first request, offers a nice additional protection to the contractual agreement for the beneficiary.

The negotiating positions between, for example, contractor/producer and builder/customer obviously play a role. Fierce competition between contractors plays into the hands of the beneficiaries, who can thus make tough demands. For some large (public) projects with structured financing, financiers often expect bank guarantees on first demand.

Both the guarantor of a guarantee and a surety run a credit risk on the principal for exercising his right of recourse. This risk is greater for a guarantee than for a surety. The guarantor of a guarantee, unlike the guarantor of a surety, is also not placed or subrogated in the creditor’s rights upon payment, which obviously increases the risk of the former. The conditions for granting will therefore differ for the two types

UNFAIR LABOUR PRACTICES

The main concern of labor relations is on the relationships that exist between the employer and the employee, and the labor practices that arise from the interests of such relationships. Labor relations can be of both international and domestic firms. All deal with matters such as remuneration, job security, minimum wages, health and safety, social security, and working time. Therefore, any form of violation of such laws by employers or unions is termed unfair labor relations.

Unfair Labour Practices
Section 25-T:
Prohibition of unfair labor practice:- No employer or workman or a trade union, whether registered under the Trade Unions Act, 1926, or not, shall commit any unfair labor practice.

Section 25-U:
Penalty for committing unfair labor practices:- Any person who commits any unfair labor practice shall be punishable with imprisonment for a term which may extend to six months or with a fine which may extend to one thousand rupees or with both.

A new schedule V has been added by the Industrial Disputes (Amendment) Act, 1982. In this Schedule, unfair labor practices have been defined. It contains a list of such practices as are treated unfairly on the part of the employers or their Trade Unions, or the part of workmen and their Trade Unions.

Clause (ra) of Section 2 of the Industrial dispute Act defines unfair labour practice to mean the practices specified in the fifth schedule and the fifth schedule was also inserted by the said Amending act. The fifth schedule has two parts. The first part refers to unfair labour practices on the part of the employers and trade union of employers and the second part refers to unfair labour practices on the part of the workmen and trade union of workmen. However, there is some difference between the provisions relating to unfair labour practices in the Maharashtra act and those in Central act i.e. industrial disputes act. The industrial disputes act prohibits an employer or workmen or a trade union from committing any unfair labour practice while the Maharashtra act prohibits an employer or union or an employee from engaging in any unfair labour practice. The prohibition under the industrial disputes act is aimed at preventing the commission of an unfair labour practice while the Maharashtra act mandates that the concerned parties cannot be engaged in any unfair labour practice.

Any unfair labour practice within its very concept must have some elements of arbitrariness and unreasonableness and if unfair labour practice is established the same would bring about a violation of guarantee under Article 14 of the Constitution. Therefore, it is axiomatic that anyone who alleges unfair labour practice must plead it specifically and such allegations must be established properly before any forum can pronounce on the same. It is also to be kept in mind that in the changed economic scenario, the concept of unfair labour practice is also required to be understood in the changed context. Today every State, which has to don the mantle of a welfare state, must keep in mind that twin objectives of industrial peace and economic justice and the courts and statutory bodies while deciding what unfair labour practice is must also be cognizant of the aforesaid twin objects.

I. On the part of employers and trade unions of employers

1- To interfere with, restrain from, or coerce, workmen in the exercise of their right to organise, form, join or assist a trade union or to engage in concerted activities for the purposes of collective bargaining or other mutual aid or protection, that is to say–
(a) threatening workmen with discharge or dismissal, if they join a trade union,

(b) threatening a lock-out or closure, if a trade union is organised,

(c) granting wage increase to workmen at crucial periods of trade union organisation, with a view to undermining the efforts of the trade union organisation.

2.  To dominate, interfere with or contribute support, financial or otherwise, to any trade union, that is to say-

(a) an employer taking an active interest in organising a trade union of his workmen; and

(b) an employer showing partiality or granting favour to one of several trade unions attempting to organise his workmen or to its members, where such a trade union is not a recognised trade union.

3.  To establish employer sponsored trade unions of workmen.

4.  To encourage or discourage membership in any trade union by discriminating against any workman, that is to say-
(a) discharging or punishing a workman, because he urged other workmen to join or organise a trade union,

(b) discharging or dismissing a workman for taking part in any strike (not being a strike which is deemed to be an illegal strike under this Act),

(c) changing seniority rating of workmen because of trade union activities,

(d) refusing to promote workmen to higher posts on account of their trade union activities,

(e) giving unmerited promotions to certain workmen with a view to creating discord amongst other workmen, or to undermine the strength of their trade union,

(f) discharging office-bearers or active members of the trade union on account of their trade union activities.

5.  To discharge or dismiss workmen-

(a) by way of victimisation;

(b) not in good faith, but in the colourable exercise of the employer’s rights;

(c) by falsely implicating a workman in a criminal case on false evidence or on concocted evidence;

(d) for patently false reasons;

(e) on untrue or trumped up allegation of absence without leave;

(f) in utter disregard of the principles of natural justice in the conduct of domestic enquiry or with undue halt;

(g) for misconduct of a minor or technical character, without having any regard to the nature of the particular misconduct or the past record or service of the workman, thereby leading to a disproportionate punishment.

6.  To abolish the work of a regular nature being done by workmen, and to give such work to contractors as a measure of breaking a strike.

7.  To transfer a workmen main fide from one place to another, under the guise of following management policy.

8.  To insist upon individual workmen, who are on a legal strike to sign a good conduct bond, as a pre-condition to allowing them to resume work.

9.  To show favouritism or partiality to one set of workers regardless of merit.

10.  To employ workmen as “badlis”, casuals or temporaries and to continue them as such for years, with the object of depriving them of the status and privileges of permanent workmen.

11.  To discharge or discriminate against any workman for filing charges or testifying against an employer in any enquiry or proceeding relating to any industrial dispute.

12.  To recruit workmen during a strike which is not an illegal strike.

13.  Failure to implement award, settlement or agreement.

14.  To indulge in acts of force or violence.

15.  To refuse to bargain collectively, in good faith with the recognised trade unions.

16.  Proposing or continuing a lock-out deemed to be illegal under this Act.

II-On the part of workmen and trade unions of workmen.

1.   To advise or actively support or instigate any strike deemed to be illegal under this Act.
2.   To coerce workmen in the exercise of their right to self-organisation or to join a trade union or refrain from joining any trade union, that is to say :-
(a) for a trade union or its members to picketing in such a manner that non-striking workmen are physically debarred from entering the work places;

(b) to indulge in acts of force or violence or to hold out threats of intimidation in connection with a strike against non-striking workmen or against managerial staff.

3.   For a recognised union to refuse to bargain collectively in good faith with the employer.
4.    To indulge in coercive activities against certification of a bargaining representative.

5.   To stage, encourage or instigate such forms of coercive actions as willful “go slow”, squatting on the work premises after working hours or “gherao” of any of the members of the managerial or other staff.

6.  To stage demonstrations at the residences of the employers or the managerial staff members.

7.  To incite or indulge in wilful damage to employer’s property connected with the industry.

8.   To indulge in acts of force or violence or to hold out threats of intimidation against any workman with a view to prevent him from attending work.

CONTRACT OF GUARANTEE

The term “guarantee” is defined by the Black Laws Dictionary as “the certainty that a legal contract will be duly enforced.”A guarantee contract is regulated by the Indian Contract Act, 1872, and comprises 3 parties, including one who serves as the guarantor if the defendant fails to meet his obligations. Whenever a party seeks a loan, products, or employment, a guaranteed contract is usually required. In such arrangements, the guarantor promises the creditor that the person in need can be trusted and that in the event of a default, he will accept responsibility for payment.

According to sec 126, “A contract of guarantee is a contract to perform the promise or discharge
the liability of the third person in case of his default”. A guarantee may be either oral or written.

Surety: A surety could be a person giving a guarantee during a contract of guarantee. Someone who takes responsibility to pay cash performs any duty for one more person just in case that person fails to perform such work.

 Principal Debtor: A principal mortal could be a person for whom the guarantee is given during a contract of guarantee.

Creditor: The person to whom the guarantee is given is referred to as a creditor. 

ESSENTIALS OF A CONTRACT OF GUARANTEE
following are the essential features of a valid contract of guarantee.

  1. Tripartite agreement:
    contract of guarantee is a tripartite agreement between the principal debtor, creditor and
    surety
  2. Consent of three parties:
    There must be a consent of all three parties
  3. It may be oral or in writing:
    A contract of guarantee may be either oral or in writing. Whereas, as per English law, the
    guarantee must be in writing and signed by the party who offers the guarantee.
  4. Existence of Liability:
    There must be an existing liability or a promise whose performance is guaranteed and such
    liability must be enforceable by law. The exception to this rule is a guarantee given for a minor’s
    debt. Though the minor’s debt is not enforceable by law, the guarantee given for the minor’s debt is
    valid.
  5. Essentials of a valid contract:
    All the essentials of a valid contract must be present in a contract of guarantee. However, the
    following points are worth noting in this regard.
    A) The principal debtor need not be competent to contract and the surety would regard as
    the principal debtor and would be personally liable to pay.
    B) Surety need not be benefited. 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.
  6. Guarantee not to be obtained by misrepresentation:
    Any guarantee which has been obtained by means of misrepresentation made by or with
    his knowledge and assent, concerning a material part of the transaction is invalid.
  7. The contract of guarantee must be supported by consideration
    We have discussed above that n contract of guarantee must have all the essential, valid
    contract. It will be interesting to know that it is not necessary that there be direct consideration
    between the surety and creditor. The law presumes that consideration received by the principal
    debtor is sufficient consideration for the surety.
  8. The promise to pay must be conditional
    It is another important essential element of a contract of guarantee. There must be a
    conditional promise to be liable for the default of the principal debtor.
  9. There should be no concealment of fact
    The creditor should disclose to the surety the facts which are likely to affect the surety’s
    liability. The guarantee obtained by the concealment of such facts is invalid.

PLEDGE

A pawn or pledge is a special kind of bailment where a movable thing is bailed as security for the repayment of a debt or for the performance of a promise. As per Section 172 of the Indian Contract Act, 1872, a pledge is a contract where a person deposits an article or good with a lender of money as security for the repayment of a loan or performance of a promise. A pledge is also known as a pawn. The depositor, or bailor, is the pawnor, and the bailee, or depositee, is the pawnee. The pawnee is under a duty to take reasonable care of the goods pledged to him. Let us learn about the rights of the pawnee and the pawnor.

Ownership of the pledged goods does not pass to the pledgee. The general property remains with the pledger, but a “special property” in it passes to the pledgee. The special property is a right to the possession of the articles, along with the power of sale on default. Delivery of the goods pawned is a necessary element in the making of a pawn. The property pledged should be delivered to the pawnee.

Essential Features of a Pledge

Since a pledge is a special kind of bailment, all the essentials of bailment are also the essentials of the pledge. Apart from that, the other essentials of the pledge are:

• There shall be a bailment for security against payment or performance of the promise,

• The subject matter of the pledge is goods, • Goods pledged for shall be in existence,

• There shall be the delivery of goods from pledger to pledgee.

• There is no transfer of ownership in the case of the pledge.

Exception: In exceptional circumstances, the pledgee has the right to sell the movable goods or property that have been pledged.

Who may pledge?

Any of the following persons may make a valid pledge:

i. The owner, his authorized agent, or

ii. One of the several co-owners who is in the sole possession of goods, with the consent of other owners, or

iii. A mercantile agent, who is in possession of the goods with the consent of the real owner, or

iv. A person in possession under a voidable contract before the contract is rescinded, or

v. A seller, who is in possession of goods after the sale or a buyer who has obtained possession of the goods before the sale,

vi. A person who has a limited interest in the property. In such a case, the pawn is valid only to the extent of such interest.

CONTRACT OF BAILMENT

A Bailment is a special contract defined under section 148 of the Indian Contract Act, 1872. It is derived from a French word i.e., “bailer” which means “to deliver”. The etymological meaning of bailment is “handing over” or “change of possession of goods”. By Bailment, we mean delivery of goods from one person to another for a special purpose on the contract that they shall reimburse the goods on the fulfillment of the purpose or dispose of them as per the direction of the bailor.

Definition: Contract of Bailment (Sec. 148)

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”. the property bailed is known as bailed property.

Bailment can also be described as ‘the delivery of goods to another person for a particular use’. Only ‘goods’ can be bailed and thus, only movable goods can be the subject matter of bailment. Current money or legal tender cannot be bailed. Deposition of money in a bank is not bailment as money is not ‘goods’ and the same money is not returned to the client. But the coins and notes that are no longer legal tender and are more or less just objects of curiosity, then they can be bailed.

Example: A man drops off his clothes for dry cleaning. He is the bailor and the purpose of bailment is to have the particular set of clothes cleaned. The dry cleaner is the bailee – he is the temporary custodian of the clothes and is responsible for keeping them safe and to return them to the bailor once they have been cleaned.

Essential elements of bailment

(1) Delivery of possession of goods :

 Delivery of goods from one person to another person for some purpose is an essential elements of bailment.  According to Section 149 of the Indian Contract Act, 1872 the delivery to the 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.

 (2) Delivery of possession upon a contract : 

There can be no bailment without a contract. all conditions for valid contract are to be satisfied, such as Competent parties, free consent lawful object etc.

 (3) Return or dispose of goods according to the direction : 

In bailment the goods are delivered for specific purpose. after the purpose is accomplished the goods may be returned to the bailor in the same or altered direction, condition or maybe disposed of as directed by bailor. If the person to whom the goods are delivered is not bound to restore them to the person delivering them or to deal with them according to the mandate their relationship will not be that of bailor and bailee.

CONTRACT OF INDEMNITY

The term Indemnity literally means “Security against loss”. In a contract of indemnity one party – i.e., the indemnifier promises to compensate the other party i.e., the indemnified against the loss suffered by the other.

The English law definition of a contract of indemnity is – “it is a promise to save a person harmless from the consequences of an act.” The promise may be express or it may be implied under English law.

A contract of indemnity is a direct engagement between two parties whereby one promises to save another from harm. According to section 124 of the Indian Contract Act, a contract of indemnity means “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.”

DEFINITION

As provisions made in section 124 of the Indian Contract Act 1872 say that “whenever 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.”

PARTIES TO THE CONTRACT OF INDEMNITY

Indemnifier: The person who promises to make good the loss is called the ‘indemnifier’. In the aforesaid example, A is the Indemnifier.

Indemnity holder: The person whose loss is to be made good is called the ‘Indemnity holder’. In the aforesaid example, B is the Indemnity holder.

ESSENTIALS OF CONTRACT OF INDEMNITY

  1. PARTIES TO A CONTRACT:  There must be two parties, namely, the promisor or indemnifier and the promisee or indemnified or indemnity-holder.
  2. PROTECTION OF LOSS: A contract of indemnity is entered into for the purpose of protecting the promisee from the loss. The loss may be caused by the conduct of the promisor or any other person.
  3. EXPRESS OR IMPLIED: The contract of indemnity may be expressed (i.e. made by words spoken or written) or implied (i.e. inferred from the conduct of the parties or circumstances of the particular case).
  4. ESSENTIALS OF A VALID CONTRACT: A contract of indemnity is a special kind of contract. The principles of the general law of contract contained in Sections 1 to 75 of the Indian Contract Act, 1872 are applicable to them. Therefore, it must possess all the essentials of a valid contract.
  5. NUMBER OF CONTRACTS: In a contract of Indemnity, there is only one contract that is between the Indemnifier and the Indemnified.

RIGHTS OF INDEMNITY HOLDER
l. All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.

  1. All costs which he may be compelled to pay, in bringing or defending such suit, if, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity or if the promisor authorized him to bring or defend the suit.
  2. All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor and was one which it would have been prudent for the promisee to make the absence of any contract of indemnity or if the promisor authorized him to compromise the suit.

RIGHTS OF INDEMNIFIER


The act makes no mention of the rights of the indemnifier. It has been held, however, that his rights of a surety, under Sec. 141 of the Indian contract Act. That is the rights of the promisor are virtually the same as those of the surety in a contract of guarantee.

  • The indemnifier has the right to recover all the damages that he has paid on behalf of the indemnity holder, in respect of any matter to which the contract of indemnity applies.
  • The indemnifier has the right to recover all the costs that he has incurred in bringing or defending any suit, if he has acted with the consent of the indemnity holder, or if the contract of indemnity gives him the authority to do so.
  • The indemnifier has the right to recover all the sums that he has paid under the terms of any compromise of any suit, if the compromise was not contrary to the orders of the indemnity holder, and was prudent, or if the indemnity holder authorized him to compromise the suit.
  • The indemnifier has the right to enjoy the benefit of any security that the indemnity holder has against any third party, in respect of the liability against which the indemnifier has given the indemnity. The indemnifier can sue the third party in the name of the indemnity holder, if necessary, to enforce the security.

Duties of Indemnity Holder

Except as otherwise stated in the contract, the indemnifier shall not be liable for damages under the following circumstances. He is also called the duty of indemnity-holder.

  1. Duty to Act Prudently: – Except as otherwise stated in the contract, the indemnifier shall not be indemnified for the loss caused by the negligence of the indemnity holder. In other words, it is the duty of the indemnity-holder to act prudently.
  2. Duty not to cause any harm or loss: – If the indemnity-holder acts with the intention of causing any loss or damage, the indemnifier shall not be liable for such loss. In other words, it is the duty of the indemnity or holder not to cause harm.
  3. Duty to comply with the intentions of the Indemnifier: – If the indemnity-holder acts against the instructions of the other party or the promisor, the indemnifier shall not be liable for such damages as the indemnity-holder goes beyond the instructions given by the Indemnifier. In other words, it is the duty of the indemnity-holder to follow the intent of the promoter.

Duties of Indemnifier

The duties of an indemnifier arise in the following circumstances:

  1. There must be a loss in accordance with the contract to make the indemnifier liable.
  2. There must be an occurrence of the anticipated event. Without any occurrence of the prescribed event, there is no indemnity by the indemnifier.
  3. Where the right of indemnity is used prudently by the indemnity-holder and the instruction of the indemnifier is not contravened or when there is no breach of contract.
  4. If the costs demanded by the indemnifier are not caused by negligence or haphazard behaviour.

Extent of liability in Contract of Indemnity

Section 125 lays down the extent of liability or the rights available to the indemnity-holder. The promisor shall be liable in any event whether or not the promisee makes default.

The promisee is entitled to recover damages that he was compelled to pay in a suit for which he was being indemnified-

  1. All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.
  2. All costs which he may be compelled to pay in any suit if, in bringing or defending it, he did not contravene the orders of the promisor and acted as it would have been prudent for him to act in the absence of any contact of indemnity, or if the promisor authorized him to bring or defend the suit.
  3. All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.


Commencement of liability of the indemnifier

After providing the promise of indemnifying losses, when does the indemnifier become liable to pay? And under what circumstances can the indemnity holder be entitled to recover the promised indemnity.

According to the original English Rule, the maxim of law was “you must be damnified before you claim to be indemnified”, which means that only if you have suffered an injury can you claim indemnity. However, the law has transformed over the years. In present times, the indemnifier shall not wait for the indemnity holder to claim the reimbursement; he shall make it as soon as the liability occurs.