CONTRACT OF INDEMNITY

CONTRACT OF GUARANTEE

DEFINITION AND
EXPLANATION
 CONTRACT OF INDEMNITY

• It is 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. It is made in
order to protect the promisee against
anticipated loss.
CONTRACT OF INDEMNITY cont--
-
• There are only two parties involved i.e.
the person who promises to make
good the loss generally known as the
indemnifier (promisor) and the person
whose loss is to be made good called
as the indemnified (promisee).
CONTRACT OF INDEMNITY cont---

• There is only one contract between the

parties.

• There is an undertaking on the part of the

indemnifier to be answerable for the debt or
default of another.
CONTRACT OF INDEMNITY cont---

• The liability of the indemnifier to the

indemnified is primary and independent.

• This contract is for the reimbursement

(compensation) of loss.
 CONTRACT OF GUARANTEE

• It is a contract to perform the promise or

discharge the liability of a third person in case
of his default. It is made to enable a person to
get a loan or goods on credit or an
employment.
CONTRACT OF GUARANTEE cont---

• There are three parties involved i.e. the

person who gives the guarantee known as
the surety, the person in respect of whose
default the guarantee is given known as the
principal debtor and the person to whom the
guarantee is given known as the creditor.
CONTRACT OF GUARANTEE cont-
• There are three contracts first b/w creditor
& principal debtor, second b/w surety &
creditor, third b/w surety & principal
debtor.

• This contract is for the security of the

creditor.
CONTRACT OF GUARANTEE cont-

• The primary liability is of principal debtor and

the surety has a secondary liability. Which
means that the payment is to be made by the
surety only if the debtor does not pay.
 CONTRACT OF GUARANTEE cont---
RIGHTS AND LIABILITIES OF SURETY.
1. Right to securities
• Surety is entitled to the benefit of all the
securities given by the principal debtor to
the creditor.
• Surety can recover the securities only after
making full payment. He cannot claim the
benefit of a part of the securities if he has
paid a part of the debt.
 RIGHTS AND LIABILITIES OF SURETY.
cont---
2. Right of surety when the creditor loses or
parts with the securities of the principal
debtor:
if the creditor by negligence loses any
security held by him, or if the creditor parts
with the security, the liability of the surety is
reduced to the extent of the value of those
securities.
RIGHTS AND LIABILITIES OF SURETY.
cont---

2. Right of reimbursement
(compensation) from the principal
debtor
 CONTRACT OF GUARANTEE cont---
DISCHARGE OF SURETY

 Change in the terms of the contract without

the consent of the surety.
 Discharge by death of the surety.
 Compounding of creditor with principal
debtor by either giving more time to the
debtor etc.
1. CONTRACT OF BAILMENT
2. CONTRACT OF BAILMENT
OF PLEDGE

DEFINITION AND EXPLANATION

 CONTRACT OF BAILMENT
• DEFINITION
• 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”.
 CONTRACT OF BAILMENT
cont---
• Bailor: The person delivering the goods is
called the ‘bailor’.

• Bailee: The person to whom the goods are

delivered is called the bailee.
 ESSENTIALS OF BAILMENT
1. Contract: bailment is based on a contract
between bailor and bailee. If the goods are
delivered without any contract i.e. by mistake,
there is no bailment.

2. Specific purpose: the bailment of goods is

always made for some purpose and is subject
to the condition that when the purpose is
accomplished the goods will be returned to the
bailor or disposed of according to the
directions of the bailor
 ESSENTIALS OF BAILMENT
cont---

3. Delivery of goods: the most important feature

of bailment is the delivery of moveable goods
from one to another. Mere custody does not
create relationship of bailor and bailee. A
servant who receives goods from his master to
take to a third person has only custody.
 ESSENTIALS OF BAILMENT
cont---

4. Return of specific goods: As soon the

purpose is achieved, the goods shall be
returned or disposed off according to the
directions of the bailor. There is a bailment
even if the goods bailed are, in the meantime,
altered in form, e.g. when a piece of cloth is
stitched into a suit.
 RIGHTS OF BAILOR

1. Right to demand the return of goods and

compensation:
The bailor is entitled to demand the return of
the goods bailed as soon as the purpose of
bailment is achieved. He is also entitled to
compensation if the bailee makes any default
in returning the goods.
 RIGHTS OF BAILOR
cont---

2. Right to terminate bailment:

the bailor may terminate the bailment if the
bailee does any act which is against the terms
of the contract of bailment even though the
term (time period) of bailment is not expired.
 RIGHTS OF BAILOR
cont---

3. Right to claim increase:

the bailor has the right to claim increase or
profit, which may arise from the goods bailed.
 DUTIES OF BAILOR

1. To disclose known faults: the bailor must

disclose the known faults about the goods
bailed to the bailee. If he does not make much
disclosure, he is responsible for any damage
caused to the bailee directly from such faults.
 DUTIES OF BAILOR
cont---
2. To bear extraordinary expenses of bailment:
in case of any kind of bailment, it is the duty of
the bailor to bear extra-ordinary expenses, if
any, incurred by the bailee regarding the goods
bailed. In non- gratuitous bailment the bailor is
not liable to bear the ordinary expenses.
 DUTIES OF BAILOR
cont---
3. To indemnify for defective Title: the bailor is
responsible to indemnify the bailee if the title of
the bailor to the goods is defective and due to
which the bailee suffers any loss.
 RIGHTS OF BAILEE
• Right to recover damages for any injury caused
due to a defect of the goods bailed.

• Right to be reimbursed for legitimate expenses

incurred by the bailee.

• Right to be compensated for loss caused due to a

defect in bailor’s title.
 DUTIES OF BAILEE
• Taking reasonable care of the goods bailed.

• Bailee must not make any unauthorized use of the

goods bailed.

• He must not mix the goods bailed with his own

goods, without the permission of the bailor.
 DUTIES OF BAILEE
Cont---

• He must return the bailed according to the

directions of the bailor.

• He must deliver the increase or profit if accrued

from the goods bailed to the bailor.
 BAILMENT OF PLEDGE
• DEFINITION
• The bailment of goods as security for
payment of a debt or performance of a
promise is called a pledge. In case of
pledge the goods are deposited as
security to get a loan. It confers no right
to sell the goods placed as security. It
creates only a right to retain property /
goods given as security.
 BAILMENT OF PLEDGE
cont---

• Pawnor: the bailor or the person who delivers or

deposits the goods as security is known as
Pawnor.

• Pawnee: the bailee or the person to whom the

goods are deposited is known as the Pawnee.
 RIGHTS OF PAWNEE
• Right to retain goods: the Pawnee can retain the
goods pledged until his dues are paid as well as
the interest due on the debt and all necessary
expenses incurred by him.

• Right to recover extra ordinary expenses: the

Pawnee also has a right to recover from the
Pawnor extra ordinary expenses incurred by him
for the preservation of the goods pledged.
 RIGHTS OF PAWNEE
cont---
• Right to sue and sell: if the Pawnor
makes default in the payment of the
debt or the performance of the
promise by the stipulated time the
Pawnee may sue the Pawnor for the
debt or he may sell the goods pledged
after giving the Pawnor a reasonable
notice.
 RIGHTS OF PAWNOR

• Right to recover: if the Pawnee makes

an unauthorized sale i.e. without giving
a reasonable notice, the Pawnor can file
a case against him.

• Right to claim increase: the Pawnor

has the right to receive the pledged
goods back along with increase, if any,
on making the full payment on stipulated
date