ICA- SPECIAL CONTRACTS

Question 1

Indemnity Contract

Answer 1

A contract where one party promises to save the other from any loss caused to him by the conduct of promissor
himself or any other person is called contract of indemnity, (Section 124) Indian Contract Act, 1872. The term
Indemnity literally means “Security against loss”. In a contract of indemnity one party – i.e. the indemnifier
promise to compensate the other party i.e. the indemnified against the loss suffered by the other.

Section 124 deals with one particular kind of indemnity which arises from a promise made by an indemnifier to
save the indemnified from the loss caused to him by the conduct of the indemnifier himself or by the conduct of any other person, but does not deal with those classes of cases where the indemnity arises from loss caused by
events or accidents which do not depend upon the conduct of indemnifier or any other person (Gajanan Moreshwar vs Moreshwar Madan, AIR 1942)

Question 2

Contract of Indemnity When Enforceable

Answer 2

After the landmark deicision in the case of Gajanan Moreshwar v Moreshwar Madan Mantri it has been well established that the liability of the indemnifier commences as soon as the loss of the indemnified becomes
absolute, certain or imminent. It is not necessary that the promisee should pay for the loss

Question 3

Section 125- Rights of indemnity-holder when sued

Answer 3

The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor—

(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 such 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 contract 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.

Question 4

Section 126- Contract of Guarantee

Answer 4

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.

Question 5

Section 141-Surety’s right to benefit of creditor’s securities.

Answer 5

A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.

Question 6

Section 132-Liability of two persons, primarily liable, not affected by arrangement between them that
one shall be surety on other’s default

Answer 6

Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract, the liability of each of such two persons to
the third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence.

Question 7

Section 133-Discharge of surety by variance in terms of contract.

Answer 7

Any variance, made without the
surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges
the surety as to transactions subsequent to the variance.

Question 8

Section 134-Discharge of surety by release or discharge of principal debtor.

Answer 8

The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.

Question 9

Section 135-Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.

Answer 9

A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.

Question 10

Section 136-Surety not discharged when agreement made with third person to give time to principal
debtor.

Answer 10

Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged.

Question 11

Section 137-Creditor’s forbearance to sue does not discharge surety.

Answer 11

Mere forbearance on the part of
the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.

Question 12

Section 138-Release of one co-surety does not discharge others.

Answer 12

Where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties

Question 13

Section 139-Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy.

Answer 13

If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

Question 14

Section 140-Rights of surety on payment or performance.

Answer 14

Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.

Question 15

Section 142-Guarantee obtained by misrepresentation invalid.

Answer 15

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.

Question 16

Section 143- Guarantee obtained by concealment invalid.

Answer 16

Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.

Question 17

Section 144-Guarantee on contract that creditor shall not act on it until co-surety joins.

Answer 17

Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join.

Question 18

Section 145-Implied promise to indemnify surety.

Answer 18

In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but, no sums which he has paid wrongfully.

Question 19

Section 146-Co-sureties liable to contribute equally.

Answer 19

Where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the
contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

Question 20

Section 147-Liability of co-sureties bound in different sums

Answer 20

Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.

Question 21

Section 148-“Bailment”“bailor” and “bailee” defined.

Answer 21

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”
.

Question 22

Section 149-Delivery to bailee how made.

Answer 22

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
authorized to hold them on his behalf.

Question 23

Section 150-Bailor’s duty to disclose faults in goods bailed

Answer 23

The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

Question 24

Section 151-Care to be taken by bailee.

Answer 24

In all cases of bailment the bailee is bound to take as much care
of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed

Question 25

Section 152-Bailee when not liable for loss, etc., of thing bailed.

Answer 25

The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 151.

Question 26

Section 153-Termination of bailment by bailee’s act inconsistent with conditions

Answer 26

A contract of bailment is avoidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment.

Question 27

Section 154- Liability of bailee making unauthorized use of goods bailed.

Answer 27

If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

Question 28

Section 155-Effect of mixture, with bailor’s consent, of his goods with bailee’s.

Answer 28

If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee shall have an interest, in proportion to their respective shares, in the mixture thus produced.

Question 29

Section 156-.Effect of mixture without bailor’s consent, when the goods can be separated.

Answer 29

If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.

Question 30

Section 157- Effect of mixture, without bailor’s consent, when the goods cannot be separated.

Answer 30

If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods, and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods.

Question 31

Section 158-Repayment, by bailor, of necessary expenses.

Answer 31

Where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.

Question 32

Section 159-Restoration of goods lent gratuitously.—

Answer 32

The lender of a thing for use may at any time require its return, if the loan was gratuitous, even though he lent it for a specified time or purpose. But if, on the faith of such loan made for a specified time or purpose, the borrower has acted in such a manner that the return of the thing lent before the time agreed upon would cause him loss exceeding the benefit actually derived by him from the loan, the lender must, if he compels the return, indemnify the borrower for the amount in which the loss so occasioned exceeds the benefit so derived

Question 33

Section 160-Return of goods bailed, on expiration of time or accomplishment of purpose.

Answer 33

It is the duty of the bailee to return, or deliver according to the bailor’s directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.

Question 34

Section 161-Bailee’s responsibility when goods are not duly returned.

Answer 34

If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time

Question 35

Section 162- Termination of gratuitous bailment by death.

Answer 35

A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

Question 36

Section 163- Bailor entitled to increase or profit from goods bailed.

Answer 36

In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.

Question 37

Section 164-Bailor’s responsibility to bailee.

Answer 37

The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them.

Question 38

Section 165-Bailment by several joint owners.

Answer 38

If several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions of, one joint owner without the consent of all in the absence of any agreement to the contrary.

Question 39

Section 166-Bailee not responsible on re-delivery to bailor without title.

Answer 39

If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of, the bailor, the bailee is not responsible to the owner in respect of such delivery

Question 40

Section 167-Right of third person claiming goods bailed.

Answer 40

If a person, other than the bailor, claims goods bailed he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods.

Question 41

Section 168-Right of finder of goods, may sue for specific reward offered.

Answer 41

The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain the goods against the owner until he receives such compensation; and, where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it.

Question 42

Section 169-When finder of thing commonly on sale may sell it.

Answer 42

When a thing which is commonly the subject of sale is lost, if the owner cannot with reasonable diligence be found, or if he refuses, upon demand, to pay the lawful charges of the finder, the finder may sell it— (1) when the thing is in danger of perishing or of losing the greater part of its value, or, (2) when the lawful charges of the finder, in respect of the thing found, amount to two-thirds of its value.

Question 43

Section 170-Bailee’s particular lien.

Answer 43

Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

Question 44

Section 171-General lien of bankers, factors, wharfingers, attorneys and policy-brokers.

Answer 44

Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect

Question 45

Section 172- “Pledge”“pawnor”,and “pawnee” defined.

Answer 45

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”.

Question 46

Section 173-Pawnee’s right of retainer.

Answer 46

The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

Question 47

Section 174- Pawnee not to retain for debt or promise other than that for which goods pledged. Presumption in case of subsequent advances.

Answer 47

The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee.

Question 48

Section 175-Pawnee’s right as to extraordinary expenses incurred.

Answer 48

The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

Question 49

Section 176- Pawnee’s right where pawnor makes default.

Answer 49

If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

Question 50

Section 177-Defaulting pawner’s right to redeem

Answer 50

If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.

Question 51

Section 178-Pledge by mercantile agent.

Answer 51

Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.

Question 52

Section 178A-Pledge by person in possession under voidable contract.

Answer 52

When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title.]

Question 53

Section 179- Pledge where pawnor has only a limited interest.

Answer 53

Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.

Question 54

Section 180-Suit by bailor or bailee against wrong-doer

Answer 54

If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.

Question 55

Section 181-Apportionment of relief or compensation obtained by such suits.

Answer 55

Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.