Introduction

The Indian Contract Act, 1872 governs the manner in which contracts are
made and executed in India. It merely provides certain elementary
conditions under which a Contract becomes binding on the parties. The
parties to the contract may agree to a particular form or condition or
mode in which the contract is to be executed.

It is very essential to know The Indian Contract Act to enter into

Business contracts and to have an elaborate idea of Offer-Acceptance-
Revocation of Proposals. When a Proposal becomes Contract? When a
Contract becomes Binding? And of Consequences of Breach of
Contract! Contract Act plays an important role in understanding
Indemnity & Guarantee, Sale of Goods & Services, Agency, Partnership
etc.

It governs the way in which the provisions in a contract are

implemented and codifies the effect of a breach of contractual
provisions. Within the framework of the Act, parties are free to contract
on any terms they choose. Indian Contract Act consists of limiting
factors subject to which contract may be entered into, executed and
breach enforced. The rights and duties of parties and terms of
agreement are decided by the contracting parties themselves The court
of law acts to enforce agreement, in case of non-performance.
 1

Definition

Section 2(h) of the Act defines the term contract as "any agreement enforceable by
law". There are two essentials of this act, agreement and enforceability.

Section 2(e) defines agreement as "every promise and every set of promises,
forming the consideration for each other."

Again Section 2(b) defines promise in these words: "when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to be
accepted. Proposal when accepted, becomes a promise."
 2

Previous position

Law of Contracts was in an extremely uncertain, ambiguous and

confused state. It was a mixed bag and consisted of partly English law,
partly Hindu law and partly Muslim law. Which principle of which law would
be applied by the court was most difficult to predicate beforehand till the
judicial pronouncement was made. In the mofussil , under the maxim of
justice, equity and good conscience, some principles of English law were
being imported

In the presidency towns, the Supreme Courts were required to

administer Hindu, Mohameddan and English laws of Contracts. In actual
practice, except for a few aspects of contract law such as thedamdupat, the
Hindu and Muslim laws were not very much applied and by far English law
was in vogue in the presidency towns

There were many points of differences in the law of contracts

prevailing in the mofussil and presidency towns, although the Privy Council
made attempts to narrow down this gap, as in shown by its pronouncement
on the applicability of the law of maintenance and champerty in the mofussil.
The law in presidency towns was archaic because only the pre-1726 English
law prevailed there and no post 1726 statute was made applicable. The law
lay buried deep in precedents and case-law and, thus, it became difficult
even for a well informed lawyer to ascertain the law. The law of contracts
was thus very inarticulate and adversely affected proper development of
trade and commerce in the country. Codification of law in this area was a
great desideratum
 3

Draft

As early as 1855, the second law commission in its second report

suggested the enactment of a uniform body of the law of contracts which
might be applicable to all Hindus and others5. It comprised of the rules for
the sale of movable property, indemnity, and guarantee, bailments, agency
and partnership. The draft bill consisted of the English law of contract which
simplified and altered in some particulars so as to accommodate it to the
circumstances of the country. The draft prepared was not destined to be
enacted as such in to law immediately. The bill was sent to the Secretary of
the state and very laudatory remarks were made about the bill in the
statement of objects. There were certain provisions in the bill, especially
those relating to specific performance, which caused considerable discussion
and difference of opinion between those who were responsible for the bill in
India and those who had framed it in England. Among other features of the
bill, Sir Henry Maine, the Law Member in India till 1869, had objections to
the provisions concerning specific performance contained in the draft bill.
4
 Terms of Agreement

As per Contract Act, an agreement enforceable by law is a contract. Hence,

we have to understand first what is ‘agreement’.

Every promise and every set of promises, forming the consideration for each
other, is an agreement. A person makes a proposal (offer). When it is accepted by
other, it becomes a promise. However, promise cannot be one sided. Only a mutual
promise forming consideration for each other is ‘agreement’.

MEANING OF ‘PROPOSAL’ - When one person signifies to another his

willingness to do or to abstain from doing anything, with a view to obtaining the
assent of that other to such act or abstinence, he is said to make a proposal.
[section 2(a)].- - Thus, a ‘proposal’ can be to do a positive act or abstinence from
act (i.e. negative act). [English Act uses the word ‘offer’, while Indian Contract Act
uses the word ‘proposal’. Generally, both words are used inter-changeably. This is
not technically correct, as the word ‘offer’ is not used in Contract Act].

MEANING OF ‘PROMISE’ - When the person to whom the proposal is made

signifies his assent thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise. [section 2(b)]. - - Thus, when a proposal (offer) is
accepted, it becomes a ‘promise’. As is clear from the definition, only person to
whom proposal is made can signify his assent. Other person cannot accept a
proposal.

PROMISOR AND PROMISEE - The person making the proposal is called the
“promisor”, and the person accepting the proposal is called the “promisee”. [section
2(c)].

RECIPROCAL PROMISES - Promises which form the consideration or part

of the consideration for each other are called reciprocal promises. [section 2(f)].

5
 Essential Elements of a Valid Contract

Agreements and contracts are two different things. It is important to know first
what constitutes a contract and what constitutes an agreement. The steps
involved in the contract are - proposal and its communication , acceptance of
proposal and its communication , Agreement by mutual promises , Contract ,
Performance of Contract

“All agreement are contracts if they are made by ‘FREE CONSENT’ of

Parties ‘COMPETANT TO CONTRACT’, for a ‘LAWFUL CONSIDERATION’
and with ‘A LAWFUL OBJECT’ and are ‘NOT DECLARED TO BE VOID”

ELEMENTS:-

1. Proposal and acceptance

2. Consideration – lawful consideration with a lawful object
3. Capacity of parties to contract – competent parties
4. Free consent
5. An agreement must not be expressly declared to be void.
6. Writing and Registration if so required by law
7. Legal relationship
8. Certainty
9. Possibility of performance
10. Enforceable by law.

6
Proposal and Acceptance:

When one person signifies to another his willingness to do or abstain from doing
anything with a view to obtaining the assent of that other to such act or abstinence
he is said to make a proposal.

The first step towards creating a contract is that one person shall signify or
make a proposal or offer to the other, with a view to obtaining the acceptance of
that another person to whom the offer is made. A proposal when accepted becomes
a promise.

When the person to whom the proposal is made signifies his assent thereof the
proposal is said to be accepted. A proposal when accepted becomes a promise.

Consideration:

When at the desire of the promisor the promisee or any other person has done
or abstained from doing, or does or abstains from doing or promises to do or to
abstain from doing something such act or abstinence or promise is called a
consideration for the promise.

Every contract consists of two parts - (1)Promise and (2)Consideration for the
promise. A promise is often made in return for a promise for example a buyer
realizes the goods for the price. Price for goods is therefore, consideration here

Consideration is the cause of the promise. It is the most essential element of the
contract. As a general rule, agreement without consideration is void. The promise
for a promise in return is consideration.

7
Illustrations:

A agrees to sell his house to B for Rs 10,000. Here A’s promise to sell his
house is for B’s consideration to pay Rs 10,000. Similarly B’s promise to pay Rs
10,000 is for A’s consideration to sell his house to B.

An agreement is a contract, only if it is made for a lawful consideration and with a

lawful object.

The consideration or object of an agreements is unlawful if —

(1) it is forbidden by law; or

(2) is of such a nature that, if permitted it would defeat the provisions of any
laws
(3) is fraudulent; or
(4) involves or implies injury to the person or property of another
(5) the court regards it as immoral or opposed to public policy

In each of these cases, the consideration or object of an agreement is said to be

unlawful. Every agreement if which the object or consideration is unlawful is
void.

Capacity of parties to contract – Competent parties:

Every person is competent to contract who is of the age of majority according to

the law to which he is subject, and who is of sound mind, and is not disqualified
from contacting by any law to which he is subject.

Free Consent:

Parties to a contract must give their consent. The parties must be ad idem, for
example both the parties must agree upon the same thing in the same sense.
Two
or more persons are said to consent when they agree upon the same thing in
the
same sense. Mere consent is not enough. Consent of parties must be free, for
example it must not have been obtained (1) coercion, (2) undue influence, (3)
fraud, (4) misrepresentation, or (5) mistake.
8
An agreement must not be expressly declared to be void:

A void agreement is not enforceable by law (Sec 2(g)). It has no legal

sanctity. It does not give rise to any rights and obligations. Various agreements are
expressly declared void under the Act.

Writing and registration:

Oral contract is a valid contact. However the contract must be in writing and
registered, if so required by any law, for example, gift, mortgage, sale, lease under
the Transfer of Property Act 1882, Memorandum and Articles of Association of a
Company under the Indian Companies Act, contracts under sub sections (10 and 3)
of section 25 of the Indian Contract Act, etc. Documents specified under section 17
of the Indian Registration Act, 1908, are required to be registered.No particular
form of writing is required to constitute a contract. Intentions of the
parties to enter into a particular contract and to give effect to it must be manifest in
it, in order to constitute a valid contract.

Legal relationship:

Agreements which create legal relations or are capable of creating legal relations
are contracts, for example, an invitation to a dinner does not create any legal
relation and therefore is not a contract.

Certainty:

The terms of a contract should be clear. In other words, the contract must not be
vague. Contracts which are vague cannot be enforced.

9
Possibility of performance:

Contracts based on impossibility of performance are not valid. The contracts must
be capable of being performed.

Enforceable by law

A contract in order to be valid must be enforceable by law which element

distinguishes agreement and contract. It is enforceable by law it is contract
otherwise it is an agreement. The aggrieved party should be able to obtain
relief
through law in the event of breach of contract. An agreement can also be
inferred
from correspondence exchanged between the parties
 10

Classification of Contracts

Validity Formation Performance

Valid contract Express contract Executed contract

Void contract Implied contract Executory contract

Voidable contract Tacit contract Unilateral contract

Illegal contract Quasi contract Bilateral contract

Unenforceable contract

On the basis of Validity:

On Basis of Validity

Valid contract: An agreement which has all the essential elements of a

contract is called a valid contract. A valid contract can be enforced by law.

Void contract[Section 2(j)]: A void contract is a contract which ceases to

be enforceable by law. A contract when originally entered into may be valid and
binding on the parties. It may subsequently become void.

Voidable contract[Section 2(i)]: An agreement which is enforceable by

law at the option of one or more of the parties thereto, but not at the option of
other or others, is a voidable contract. If the essential element of free consent is
missing in a contract, the law confers right on the aggrieved party either to reject
the contract or to accept it. However, the contract continues to be good and
enforceable unless it is repudiated by the aggrieved party.

Illegal contract: A contract is illegal if it is forbidden by law; or is of such

nature that, if permitted, would defeat the provisions of nay law or is fraudulent; or
involves or implies injury to a person or property of another, or court regards it as
immoral or opposed to public policy. These agreements are punishable by law.
These are void-ab-initio.
“All illegal agreements are void agreements but all void agreements are not illegal.”

Unenforceable contract: Where a contract is good in substance but because of

some technical defect cannot be enforced by law is called unenforceable
contract. These contracts are neither void nor voidable.

11
 On the basis of Formation:

Express contract: Where the terms of the contract are expressly agreed
upon in words (written or spoken) at the time of formation, the contract is said to
be express contract.

Implied contract: An implied contract is one which is inferred from the acts
or conduct of the parties or from the circumstances of the cases. Where a proposal
or acceptance is made otherwise than in words, promise is said to be implied.

Tacit contract: Tacit contracts are IMPlIED contract in itself. eg-Taking

ticket in the bus,during journey..

Quasi contract: A quasi contract is created by law. Thus, quasi contracts

are strictly not contracts as there is no intention of parties to enter into a contract.
It is legal obligation which is imposed on a party who is required to perform it. A
quasi contract is based on the principle that a person shall not be allowed to enrich
himself at the expense of another.

On the basis of Performance:

Executed contract: An executed contract is one in which both the parties

have performed their respective obligation.

Executory contract: An executory contract is one where one or both the

parties to the contract have still to perform their obligations in future. Thus, a
contract which is partially performed or wholly unperformed is termed as executory
contract.

Unilateral contract: A unilateral contract is one in which only one party has
to perform his obligation at the time of the formation of the contract, the other
party having fulfilled his obligation at the time of the contract or before the contract
comes into existence.

Bilateral contract: A bilateral contract is one in which the obligation on

both the parties to the contract is outstanding at the time of the formation of the
contract. Bilateral contracts are also known as contracts with executory
consideration.
 12

Acceptance

"When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted."

Rules:

Acceptance must be absolute and unqualified.

Communicated to offeror.
Acceptance must be in the mode prescribed.
Acceptance must be given within a reasonable time before the offer lapses.
Acceptance by the way of conduct.
Mere silence is no acceptance.

Lawful Consideration

Consideration is defined as: "When at the desire of the promisor, the

promisee has done or abstained from doing, or does or abstains from doing, or
promises to do or abstain something, such an act or abstinence or promise is called
consideration for the promise."

In short, Consideration means quid pro quo i.e. something in return

In agreement must be supported by a lawful consideration on both sides.
The consideration or object of an agreement is lawful, unless and until it is-
1.forbidden by law, or
2.is of such nature that ,if permitted ,it would defeat the provisions of any
law ,or 3.is fraudulent ,or involves or implies injury to the person or property
of another ,or 4.the court regards it as immoral ,or opposed to public policy.
5.consideration may take in any form-money,goods,services,a promise to
marry, a promise to forbear etc.
 13

Competent To Contract

Section 11 of The Indian Contract Act specifies that every person is competent to
contract provided:

He should not be a minor i.e. an individual who has not attained the age of majority
i.e. 18 years.
He should be of sound mind while making a contract. A person with unsound mind
cannot make a contract.
He is not a person who has been personally disqualified by law.

Free Consent

According to Section 13, " two or more persons are said to be consented when they
agree upon the same thing in the same sense (Consensus-ad-idem).

A consent is said to be free when it not caused by coercion or undue influence or

fraud or misrepresentation or mistake.

Elements vitiating free Consent

1. Coercion (Section 15): "Coercion" is the committing, or threatening to

commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or
threatening to detain, any property, to the prejudice of any person whatever, with
the intention of causing any person to enter into an agreement.

2. Undue influence (Section 16): "Where a person who is in a position to

dominate the will of another enters into a contract with him and the transaction
appears on the face of it, or on the evidence, to be unconscionable, the burden of
proving that such contract was not induced by undue influence shall lie upon the
person in the position to dominate the will of the other."

14

3. Fraud (Section 17): "Fraud" means and includes any of the following
acts committed by a party to a contract, or with his connivance, or by his agent,
with intent to deceive another party thereto of his agent, or to induce him to enter
into the contract.

4. Misrepresentation (Section 18): " causing, however innocently, a party

to an agreement to make a mistake as to the substance of the thing which is the
subject of the agreement".

5. Mistake of fact (Section 20): "Where both the parties to an agreement

are under a mistake as to a matter of fact essential to the agreement, the
agreement is void".

Revocation of Offer

A proposal may be revoked at any time before the communication of its acceptance
is complete as against the proposer, but not afterwards. An acceptance may
be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.

A proposal is revoked

by the communication of notice of revocation by the proposer to the other party

by the lapse of the time prescribed in such proposal for its acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance
by the failure of the acceptor to fulfill a condition precedent to acceptance
by the death or insanity of the proposer, if the fact of the death or insanity comes
to the knowledge of the acceptor before acceptance.

15

Contract of Agency

Agency is a special type of contract. The concept of agency was developed as

one man cannot possibly do every transaction himself. Hence, he should have
opportunity or facility to transact business through others like an agent. In law, the
relationship that exists when one person or party (the principal) engages another
(the agent) to act for him, e.g. to do his work, to sell his goods, to manage his
business applies to the law of agency. The law of agency thus governs the legal
relationship in which the agent deals with a third party on behalf of the principal.
The competent agent is legally capable of acting for this principal vis-à-vis the third
party. Hence, the process of concluding a contract through an agent involves a
twofold relationship. On the one hand, the law of agency is concerned with the
external business relations of an economic unit and with the powers of the various
representatives to affect the legal position of the principal. On the other hand, it
rules the internal relationship between principal and agent as well, thereby
imposing certain duties on the representative (diligence, accounting, good faith,
etc.).

The principles of contract of agency are –

Excepting matters of a personal nature, what a person can do himself, he can also
do it through agent (e.g. a person cannot marry through an agent, as it is a
matter of personal nature)
A person acting through an agent is acting himself, i.e. act of agent is act of
Principal. Since agency is a contract, all usual requirements of a valid contract
are applicable to agency contract also, except to the extent excluded in the
Act. One important distinction is that no consideration is necessary to create
an agency.
 16

AGENT AND PRINCIPAL DEFINED - An “agent” is a person employed to do

any act for another or to represent another in dealings with third persons. The
person for whom such act is done, or who is so represented, is called the “principal”

WHO MAY EMPLOY AGENT - Any person who is of the age of majority
according to the law to which he is subject, and who is of sound mind, may employ
an agent. Thus, any person competent to contract can appoint an agent.

WHO MAY BE AN AGENT - As between the principal and third persons any
person may become an agent, but no person who is not of the age of majority and
of sound mind can become an agent, so as to be responsible to his principal
according to the provisions in that behalf herein contained. The significance is that
a Principal can appoint a minor or person of unsound mind as agent. In such case,
the Principal will be responsible to third parties. However, the agent, who is a minor
or of unsound mind, cannot be responsible to Principal. Thus, Principal will be liable
to third parties for acts done by Agent, but agent will not be responsible to Principal
for his (i.e. Agent’s) acts.

CONSIDERATION NOT NECESSARY - No consideration is necessary to create an

agency. Thus, payment of agency commission is not essential to hold appointment
of Agent as valid.

An agency may come to an end in a variety of ways:

1. By the principal revoking the agency – However, principal cannot revoke an

agency coupled with interest to the prejudice of such interest. Such Agency is
coupled with interest. An agency is coupled with interest when the agent
himself has an interest in the subject-matter of the agency, e.g., where the
goods are consigned by an upcountry constituent to a commission agent for
sale, with poor to recoup himself from the sale proceeds, the advances made
 by him to the principal against the security of the goods; in such a case, the
principal cannot revoke the agent’s authority till the goods are actually sold,
nor is the agency terminated by death or insanity.

17

2. By the agent renouncing the business of agency;

3. By the business of agency being completed;

4. By the principal being adjudicated insolvent (Section 201 of The Indian

Contract Act. 1872)

The principal also cannot revoke the agent’s authority after it has been partly
exercised, so as to bind the principal , though he can always do so, before such
authority has been so exercised .

Further, if the agency is for a fixed period, the principal cannot terminate the
agency before the time expired, except for sufficient cause. If he does, he is liable
to compensate the agent for the loss caused to him thereby. The same rules apply
where the agent, renounces an agency for a fixed period. Notice in this connection
that want of skill continuous disobedience of lawful orders, and rude or insulting
behavior has been held to be sufficient cause for dismissal of an agent. Further,
reasonable notice has to be given by one party to the other; otherwise, damage
resulting from want of such notice, will have to be paid .As per section 207, the
revocation or renunciation of an agency may be made expressly or impliedly by
conduct. The termination does not take effect as regards the agent, till it becomes
known to him and as regards third party, till the termination is known to them .

When an agent’s authority is terminated, it operates as a termination of

subagent also.
 18

Breach Of Contract

Breach of contract is a legal cause of action in which a binding agreement

or bargained-for exchange is not honored by one or more of the parties to the
contract by non-performance or interference with the other party's performance. If
the party does not fulfill his contractual promise, or has given information to the
other party that he will not perform his duty as mentioned in the contract or if by
his action and conduct he seems to be unable to perform the contract, he is said to
breach the contract.

Consequences of Breach of Contract - Compensation is payable for

breach of contract. Penalty is also payable if provided in contract. Breach of
contract may be actual or anticipatory. When a contract has been broken, the party
who suffers by such breach is entitled to receive, form the party who has broken
the contract, compensation for any loss or damage caused to him thereby, which
naturally arose in the usual course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss of damage
sustained by reason of the breach. Compensation for failure to discharge obligation
resembling those created by contract . When an obligation resembling those
created by contract has been incurred and has not been discharged, any person
injured by the failure to discharge it is entitled to receive the same compensation
from the party in default.

19

Summary of principles of compensation and damages - Following

points are important “Compensation for loss or damage is payable”. Since the word
used is compensation, punitive damages cannot be awarded. These should be in
usual course or known to parties i.e. both parties must be aware. No compensation
for remote and indirect loss or damage. Same principle applies to quasi contract.

GENERAL DAMAGES – General damages are those which result from ‘direct
and proximate’ consequences from breach of contract. Normally, what can be
awarded is compensation for loss or damage which can be directly or proximately
attributed to the breach of contract. One way of assessing damages is the
difference between the contract price and the market price on date of breach of
contract, plus reasonable expenses incurred by him on account of the breach plus
cost of suit in court of law.

CONSEQUENTIAL LOSS OR SPECIAL DAMAGE – Special damages or

consequential damages arise due to existence of special circumstances. Such
damages can be awarded only in cases where the special circumstances were
foreseeable by the party committing the breach or were specifically known to the
party. Consequential losses like loss of profit due to breach, which may
occur indirectly due to breach cannot be normally awarded unless there are special
circumstances which parties were aware. Loss of profit can be awarded only in
cases where seller could have foreseen those losses and arose directly as result of
breach.

PROMISEE SHOULD TAKE STEPS TO MITIGATE THE LOSS OR DAMAGE –

Explanation to section 73 specifically provides that in estimating loss or damage,
the means available for remedying the inconvenience caused by breach of contract
shall be taken into account. Thus, promisee should take all reasonable steps to
mitigate the losses e.g. if promisor does not supply goods, he should make efforts
to procure from alternate sources may be even at higher price, to reduce his losses
arising out of breach of contract.

20

VINDICTIVE OR EXEMPLARY DAMAGES – Vindictive or exemplary damages

cannot be awarded under Contract Act. However, these may be awarded by Court
under tort under special circumstances e.g. * Dishonour of cheque by Bank when
there was balance in account, as it causes loss of reputation of credit worthiness of
person issuing cheque * Breach of contract to marry, as it hurts both feelings and
reputation.
21
 Bailment

Bailment is another type of special contract. Since it is a ‘contract’, naturally

all basic requirements of contract are applicable. Bailment means act of delivering
goods for a specified purpose on trust. The goods are to be returned after the
purpose is over. In bailment, possession of goods is transferred, but property i.e.
ownership is not transferred. 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”. Explanation : If a
person already in possession of the goods of another, contracts to hold them as a
bailee, he thereby becomes the bailee, and owner becomes the bailor, of such
goods, although they may not have been delivered by way of bailment.[Thus, initial
possession of goods may be for other purpose, and subsequently, it may be
converted into a contract of bailment, e.g. seller of goods will become bailee if
goods continue in his possession after sale is complete].

Bailment can be only of ‘goods’. As per section 2(7) of Sale of Goods Act,
‘goods’ means every kind of movable property other than money and actionable
claim. - - Thus, keeping money in bank account is not ‘bailment’. Asking a person
to look after your house or farm during your absence is not ‘bailment’, as house or
farm is not a movable property.

Bilment of pledges - Pledge is special kind of bailment, where delivery of goods is

for purpose of security for payment of a debt or performance of a promise. Pledge
is bailment for security. Common example is keeping gold with bank/money lender
to obtain loan. Since pledge is bailment, all provisions applicable to bailment apply
to pledge also. In addition, some specific provisions apply to pledge. The bailment
of goods as security for payment of a debt or performance of a promise is called
“pledge”. The bailor is in this case called the “pawnor”. The bailee is called the
“pawnee”.
 22

Contract of guarantee, surety, principal debtor" and

creditor

A "contract of guarantee" is a contract to perform the promise, or discharge

the liability, of a third person in case of his default. The person who
gives the guarantee is called the "surety", the person in respect of
whose default the guarantee is given is called the "principal debtor",
and the person to whom the guarantee is given is called the "creditor".
A guarantee may be either oral or written.

Consideration for guarantee :- Anything done, or any promise

made, for the benefit of the principal debtor, may be a sufficient
consideration to the surety for giving the guarantee.

Surety's liability :- The liability of the surety is co-extensive with

that of the principal debtor, unless it is otherwise provided by the contract.

Continuing guarantee :- A guarantee which extends to a series of

transaction, is called, a "continuing guarantee".

Revocation of continuing guarantee:- A continuing guarantee may

at any time be revoked by the surety, as to future transactions, by notice to
the creditor.

Revocation of continuing guarantee by surety' death :- The death

of the surety operates, in the absence of any contract to the contrary, as a
revocation of ma continuing guarantee, so far as regards future transactions.
23
 Contract of indemnity

A contract by which one party promises to save the other from loss
causedo him by the contract of the promisor himself, or by the conduct of
any other person, is called a "contract of indemnity".

Right of indemnity-holder when sued -The promisee in a contract of

indemnity, acting within the scope of his authority, is entitled to recover
from the promisor –

All damages which he may be compelled to pay in any suit in respect of any
matter to which the promise to indemnify applies
all costs which he may be compelled to pay in any such suit, if in bringing of
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 contract of indemnity, or if the promisor authorized him to bring or
defend the suit
All sums which he may have paid under the terms of any compromise of any
such suit, if the compromise was not contract to the orders of the
promisor, and was one which it would have been prudent for the
promise to make in the absence of any contract of indemnity, or if the
promisor authorised him to compromise the suit.

24
 BIBLIOGRAPHY

http://en.wikipedia.org

http://www.dateyvs.com

http://www.vakilno1.com

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