Chapter 2: The Indian Contract Act, 1872: Specific Contracts

2.1 Introduction to Specific Contracts

 

The Indian Contract Act, 1872, not only lays down the general principles of contracts but also governs specific types of contracts. This chapter delves into three key types: contracts of indemnity and guarantee, contracts of bailment, and contracts of agency.

 

 2.2 Contract of Indemnity and Guarantee

 

 2.2.1 Contract of Indemnity

 

A contract of indemnity, as defined in Section 124 of the Indian Contract Act, is a contract wherein 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.

 

 Essentials of a Contract of Indemnity

- Promise to Compensate: There must be a clear promise to compensate for loss.

- Loss: The loss must be caused by the conduct of the promisor or another person.

- Parties: It involves two parties - the indemnifier (promisor) and the indemnity holder (promisee).

 

 Rights of Indemnity Holder

- Right to Recover Damages: Any damages he may be compelled to pay in a suit.

- Right to Recover Costs: Any costs he may be compelled to pay in bringing or defending a suit.

- Right to Recover Sums: Any sums he may have paid under the terms of a compromise.

 

 2.2.2 Contract of Guarantee

 

A contract of guarantee, as defined in Section 126 of the Indian Contract Act, is a contract to perform the promise or discharge the liability of a third person in case of his default.

 

 Essentials of a Contract of Guarantee

- Three Parties: It involves a creditor, a principal debtor, and a surety.

- Three Agreements: There are three agreements - between the creditor and the principal debtor, between the creditor and the surety, and between the surety and the principal debtor.

- Liability: The surety's liability is secondary and arises only when the principal debtor defaults.

 

 Types of Guarantees

- Specific Guarantee: Applies to a single transaction.

- Continuing Guarantee: Applies to a series of transactions.

 

 Rights of Surety

- Against Principal Debtor: The right to be indemnified for any amount paid.

- Against Creditor: Right to securities held by the creditor.

- Against Co-Sureties: Right to claim contribution from co-sureties.

 

 Discharge of Surety

- By Revocation: Through notice by the surety.

- By Conduct of Creditor: Acts of the creditor releasing the principal debtor.

- By Invalidation: Change in terms of the contract without surety's consent.

 

 2.3 Contract of Bailment

 

 2.3.1 Definition and Essentials of Bailment

 

A contract of bailment, defined in Section 148 of the Indian Contract Act, involves the delivery of goods by one person (the bailor) to another (the bailee) for a specific purpose, upon a contract that the goods shall be returned or disposed of as directed after the purpose is accomplished.

 

 Essentials of Bailment

- Delivery of Possession: Transfer of possession of goods.

- Purpose: Specific purpose for which goods are delivered.

- Return of Goods: Obligation to return or dispose of goods as per bailor’s directions.

 

 2.3.2 Duties of Bailor and Bailee

 

 Duties of Bailor

- Disclosure: Disclose known faults in the goods.

- Bear Expenses: Bear necessary expenses for the purpose of bailment.

- Indemnify Bailee: Indemnify for any loss due to faults in the goods.

 

 Duties of Bailee

- Care of Goods: Take reasonable care of the goods.

- Not to Make Unauthorized Use: Use the goods only for the specified purpose.

- Return of Goods: Return goods after the purpose is accomplished.

 

 2.3.3 Rights of Bailor and Bailee

 

 Rights of Bailor

- Enforce Duties of Bailee: Demand performance of duties by the bailee.

- Termination of Bailment: Terminate the bailment in case of unauthorized use.

 

 Rights of Bailee

- Compensation: Right to claim compensation for necessary expenses.

- Lien: Right to retain goods until dues are paid.

 

 2.4 Contract of Agency

 

 2.4.1 Definition and Essentials of Agency

 

A contract of agency, as defined in Section 182 of the Indian Contract Act, is a contract where one person (the agent) is employed to do an act for another (the principal) or to represent another in dealings with third parties.

 

 Essentials of Agency

- Agreement: There must be an agreement between the principal and the agent.

- Authority: The agent must act within the scope of authority given by the principal.

- Representation: The agent represents the principal in dealings with third parties.

 

 2.4.2 Types of Agents

 

- General Agent: Employed to do all acts connected with a particular trade or business.

- Special Agent: Employed to do some particular act or represent the principal in some particular transaction.

- Sub-Agent: Appointed by the agent to assist in the duties.

 

 2.4.3 Duties and Rights of Agent and Principal

 

 Duties of Agent

- Follow Instructions: Act according to the instructions of the principal.

- Care and Skill: Perform duties with care and skill.

- Accountability: Render accounts to the principal.

 

 Rights of Agent

- Remuneration: Right to receive agreed remuneration.

- Indemnity: Right to be indemnified against lawful acts done in execution of duties.

 

 Duties of Principal

- Remuneration: Pay agreed remuneration to the agent.

- Indemnity: Indemnify the agent for lawful acts done.

 

 Rights of Principal

- Performance: Right to claim performance of duties by the agent.

- Terminate Agency: Right to terminate the agency in case of misconduct.

 

 2.4.4 Termination of Agency

 

- By Agreement: Mutual agreement between the principal and the agent.

- By Revocation: Principal’s revocation of the agent’s authority.

- By Renunciation: Agent’s renunciation of duties.

- By Operation of Law: Expiry of the period, completion of business, or death/insolvency of principal or agent.

 

 References

 

1. Pollock and Mulla, "The Indian Contract Act and Specific Relief Act"

2. Avtar Singh, "Law of Contract"

3. R. K. Bangia, "Indian Contract Act"

4. Dr. R. K. Bangia, "Law of Contracts - II"

5. Ramaiah, "The Indian Contract Act"