The Indian Contract Act 1872-Specific – EBOOK – Business Law – B.Com – Dibrugarh University – As per CBCS System

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 AMIT BANSAL; MA in Economics

  Faculty Member of G.S Lohia College


The term ‘Indemnity` Simply means ‘Making Somebody Safe` or ‘Paying Somebody back`.

Section 124 of contract Act defines that ‘‘A contract by which one party promises to save the other from loss caused to him by the conduct of the promisee himself by the conduct of any other person, is called a conduct of indemnity”.

The party who gives indemnity or who promises to compensate for or to make good the loss, is called. Indemnifier and the party for whose protection or safety the indemnity is given or the party whose loss is made good is called ‘Indemnified’ or ‘indemnity holder’.

Important features of an indemnity contract –

  1. Two party.
  2. Promises for pay compensation of loss/damage.
  3. Loss/damage may be the own or other person.
  4. Creation of liabilities.
  5. It must be faith.
  6. All essential features of valid contract.
  7. Compensation for actual loss/damage.
  8. It may be express or implied. Loss/damage may be caused by some event, or accident, or some natural phenomenon or disaster.

Rights of Indemnified (Indemnity-Holder) 

  1. Rights to claim for all damages/losses.
  2. Rights to claim for all costs which is related to contract.
  3. Rights to claim for all sums which his may have paid for contract.

Liabilities/Duties of Indemnified 

  1. Liabilities to pay all damages/losses.
  2. Liabilities to pay all costs related to contract.
  3. Liabilities to pay all sum which is received by sell for contract from indemnified.


The object of the contract of guarantee is to enable, a person to obtain an employment, or a loan, or some goods or service on credit.

According to section 126 of the contract Act ‘‘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’ or ‘guarantor’ & 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’.

Essential features of a Guarantee Contract

  1. Three parties
  2. Three agreement
  3. Concurrence of the three parties
  4. Control may be experts or implies
  5. It may be oral or written
  6. Liability of surety is secondary is dependent on principal debtor’s default.
  7. Guarantee must be in the knowledge of debtor.
  8. All essential of a valid contract.
  9. Guarantee must not be obtained by means of misrepresentation.
  10. Existence of a primary liability.

Kinds of Guarantee 

  1. Specific or Simple Guarantee: When a guarantee is given in respect to a single debt or specific transaction is to come to an end when the guarantee debt is paid or the promise is duly performed. It is called a specific or simple guarantee.
  • Continuing guarantee: Section 129, of the contract Act defines a guarantee which towards to a series of transaction, is called a continuing guarantee, thus, a continuing guarantee is not confined to a single transaction but keeps on moving to several transaction continuously.

Revocation of Guarantee 

Revocation of guarantee means cancellation of guarantee already accrued, it may be noted that the specific guarantee cannot be revoked if the liability has already secured. However a continuing guarantee can be revoked and on the revocation of such a guarantee, the liability of the surely or guarantor comes to an end for the future transaction. The surety continues to be liable for the transactions which have taken place up to the time of revocation. A Guarantee may be revoked in any of the following ways-

  1. By notice of revocation.
  2. By death of surely.
  3. By discharge of surely in various circumstances
  4. By novation (Sec.62)
  5. By variance in terms (Sec. 133)
  6. By release/discharge of principal Debtor (Sec.-134)
  7. When the creditor events in to an agreement with the principal debtors (Sec.13..)
  8. By creditor act or omission impairing surety’s eventual remedy (Sec. 139)
  9. By loss of security “(Sec. 141)
  10. By invalidation of contract (Sec.142,143,144)


Bailment the world ‘bailment’ is derived from the French word ‘baillier’ which means ‘to deliver Etymologically, it means any kind of handling over’. In legal sense, it involves change of possession of goods from one person to another for some specific purpose.

Definition of Bailment

Sec. 148 defines Bailment as” 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’ and the person the person to whom they are delivered is called the ‘bailee’.

Consideration in a contract of bailment

In a contract of bailment, the consideration is generally in the form money payment either by the bailor or the bailee.

Essentials for contact of bailment:

1. Agreement – There must be an agreement between the bailor and the bailee. This agreement may be either express or implied. However, a bailment may be implied by law also. For example, bailment between a finder of goods and owner of goods.

2. Delivery of Goods – There must be delivery of goods. It means that the possession of goods must be transferred. In this this connection the following points may be noted:

i. The delivery must be voluntary,

ii. Delivery may be actual or constructive.

3. Purpose – The delivery of goods must be for some intended purpose.

4. Return of specific Goods – The goods which form the subject matter of a bailment must be returned to the bailor or otherwise disposed off according to the directions of the bailor, after the accomplishment of purpose or after the expiry of period of the bailment.

Kinds/types of Bailment

i. On the basis of reward

a) Gratuitous Bailment

It is a contract of bailment where no consideration passes between the bailor and the bailee.

b) Non-gratuitous Bailment

It is a contract of bailment where some consideration passes between the bailor and the bailee.

 ii. On the basis of Benefit

a) Bailment for the exclusive benefit of the bailor

It is a contract of bailment which is executed only for the benefit of the bailor and the bailee does not derive any benefit from it.

b) Bailment for the exclusive benefit of the bailee

It is a contract of bailment which is executed only for the benefit of the bailee and the bailor does not derive any benefit from it.

c) Bailment for the mutual benefit

It is a contract of bailment which is executed for the mutual benefit of bailor and bailee.

Duties of A Bailor

  • Duty to disclose defects [Section 151]
  • Duty to bear expenses [Section 158]
  • Duty to indemnity the bailee in case of premature termination of gratuitous bailment [Section 159]
  • Duty to indemnity the bailee against the defective title of bailor [Section 164]
  • Duty to receive back the goods [Section 164]
  • Duty to bear the risk of loss [Section 152]

Duties of A Bailee

  • Duty to take care of the goods bailed [Section 151&152]
  • Duty not to make any unauthorized use of goods [Section 154]
  • Duty not to mix bailor’s goods with his own goods [Section 155 to 157]
  • Duty to return the goods [Section 160 & 161]
  • Duty to return accretion to the goods [Section 163]
  • Duty not to set up any adverse title

Rights of a Bailor:

  • Right to claim damage in case of negligence [Section152]
  • Right to terminate the contract in case of unauthorized use [Section 153]
  • Right to claim compensation in case of unauthorized use [Section 154]
  • Right to claim the separation of goods in case of unauthorized mixture of goods [Section 156]
  • Right to claim compensation in case of unauthorized mixture of goods which cannot be separated[Section 157]
  • Right to demand return of goods [Section 160]
  • Right to claim compensation in case of unauthorized retention of goods [Section 161]
  • Right to demand accretions to goods[Section 163]

Rights Of A Bailee:

  • Right to claim damage [Section 150]
  • Right to claim reimbursement of expenses [Section 158]
  • Right to be indemnified in case of premature termination of gratuitous bailment [Section 159]
  • Right to recover loss in case of bailor’s defective title [Section 164]
  • Right to recover loss in case of bailor’s refusal to take the goods back [Section 164]
  • Right to deliver goods to any one of the joint bailors [Section 165]
  • Right to deliver goods to bailor in case of bailor’s defective title [Section 166]
  • Right to particulars lien [Section 170]


Every contract of bailment comes to end under the following circumstances:

a) On the Expiry of Fixed Period

b) On fulfillment of the Purpose

c) Inconsistent Use of Goods by bailee

d) Destruction of the subject Matter of Bailment


The law of agency says that “Whatever a person can legally do himself, he can do so through an agent”. And “When a person does something through an agent it would be deemed as if he has done it himself”.

Section 182 of the Contract Act defines an Agent as ‘‘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 whom is so represented is called the principal”.

Essential Features of Agency

  1. The principal
  2. The agent
  3. An agreement
  4. Consideration not necessary
  5. Representative capacity
  6. Good faith
  7. The competence of the principal

Modes or Methods or Creation of Agency

1. Agency by express agreement [Section 186 and 187]

2. Agency by implied agreement [Section 187]

(a) Agency by estoppels: When a principal by his conduct or act cause a third person to believe that a certain person is his authorized agent the agency is aid to be an agency by estoppels.

(b) Agency by necessity: It mean the agency which comes into existence when certain circumstances compel a person to act as an agent for someone without his express authority.

(c) Agency by holding out: When a principal by his active conduct or act and without any objection permits another to act as his agent, the agency is the result of principal’s conduct as to the agent.

3. Agency by ratification [Section 196] – Ratification means confirmation of an act which has already been done. Sometimes, an act is done by a person on behalf of another person but without another person’s knowledge and authority. If he accepts and confirm the act, he is said to have ratified it.

4. Agency by operation of law: In certain circumstances the law treats a person as an agent of another person. For example, (a) when a partnership is formed, every partner automatically becomes agent of another partner. (b) when a company is formed its promoters are treated as its agents by operation of law

Rights of an Agent

  1. Right to retain money received on principal’s account.
  2. Right to receive remuneration.
  3. Right of lien on principal’s property.
  4. Right to be indemnified.
  5. Right to compensation for injury caused by principal’s neglect.

Duties of an Agent:

  1. To follow the direction of the principal.
  2. To conduct the business of agency with reasonable skill and diligence.
  3. To render accounts on demand
  4. To communicate with the principal.
  5. Not to deal on his own account
  6. To pay the amounts received for the principal
  7. Not to delegate his authority
  8. Not to act in excess of authority
  9. Duty on termination of agency by principal’s death or insanity.


Termination of agency means revocation (cancellation) of authority of the agent the modes of termination of agency may be classified are as:

(a) Termination of Agency by the act of the Parties.

  1. By revocation of authority by the principal
  2. By renunciation (giving up) of business of agency by the agency
  3. By mutual agreement

(b) Termination of agency by Operation of Law

  1. Completion of business of agency
  2. Death or insanity of principal or agent
  3. Insolvency of the principal
  4. Destruction of subject matter
  5. Expiry of time
  6. Agency subsequently becoming unlawful.
  7. Termination of sub agent’s authority

(Statutory declaration: The above notes have been compiled referring to Indian Contact Act, 1872 – Bare Act, Elements of Mercantile Law by N.D.Kapoor  & Business law by N.D.Kapoor and various websites. The above notes are reference and not exhaustive and students are advised to refer to the reference books to get a complete idea of the topic.)



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