Unit 1 - Law of contracts 2

Section 124

Meaning and scope of contract of indemnity

Section 125

Rights and liabilities of contract of Indemnity

Definition of Indemnity

when a person promises to save another from the losses caused to him due to the conduct of the promissor or any other person, it is called contract of indemnity

Indemnifier

The party who promises to indemnify/save the other party from loss.

Indemnity holder/indemnified

the party who is being saved by the indemnifier

Adamson v Jarvis

The plaintiff, an auctioneer, sold certain cattle on the instruction of the defendant. It subsequently turned out that the livestock did not belong to the defendant, but to another person, who made the auctioneer liable, and the auctioneer in his turn sued the defendant for indemnity for the loss he had suffered by acting on the defendant's directions. The court laid down that the plaintiff, having acted on the request of the defendant, was entitled to assume that if what he did turned out to be wrongful, he would be indemnified by the defendant

Dugdale v Lovering

The plaintiff was in possession of certain trucks, which were claimed both by the defendants and one K.P. Company. The defendants demanded delivery, and the plaintiffs asked for an indemnity bond but received no reply. Even so, they delivered the trucks to the defendant. K.P. Company, having successfully sued the plaintiffs for conversion of their property, held the plaintiffs were held entitled to recover indemnity from the defendants on an implied promise, as evidenced by the fact that by demanding an indemnity, they made it quite clear that they had no intention to deliver except on indemnity.

Sheffield Corporation v. Barklay

A corporation, having registered to transfer a stock on the request of a banker, was held entitled to recover indemnity from the banker when the transfers were discovered to be forged. Thus, the English definition of indemnity includes within its ambit losses caused not merely by human agency but also those caused by accident, fire, or other natural calamities. Indeed, every contract of insurance, other than life insurance, is a contract of indemnity.

Secretary of State v Bank of India

A broker in possession of a government promissory note endorsed it to a bank with a forged endorsement. The bank, acting in good faith, applied for and got a renewed promissory note from the Public Debt Office. Meanwhile, the true owner sued the Secretary of State for conversion, who in turn sued the bank on an implied indemnity

Rights of indemnity holder

· Right to recover damages (he payed during suit)

· Right to recover costs (Legal/liligation costs for defence)

· Right to recover sums paid under compromise (Of suit)

Commencement of liability of Indemnifier

The moment of absolute liability to the indemnity holder

Section range for contract of guarantee

Section 126 to 147

definition Section

Section 126:

A person performs the promise or discharges the liability of a third person if he defaults

Essentials of a contract of guarantee

Tripartite Agreement

Principal debt

consideration (Section 127)

section 127

consideration in guarantee

section 142

Misrepresentation in Guarantee

PJ Rajappan v. Associated agencies

Suerity present and involved in contract but doesn't sign (still liable)

Taylor v. Lee

Landlord agrees to cover tenants expenses (Normal contract, not contract of guarantee)

Section 143

Guarantee obtained through concealment of material facts

Section 146

Co-surety

Sections 129 & 130

Section 129—Continuing Guarantee

Section 130—Revocation of continuing Guarantee

Section 131

Death of surety

Section 133

Variance made in contract without suerity's consent (Discharge)

Section 134

Discharge or release of principal debtor's liability

Section 135

The creditor gives an extension or additional time to the principal debtor without reason and permission of the surety.

OR

The principal debtor promises to only always seek out the surety (without the surety's awareness)

Exception—Section 137

Section 137

If the creditor agrees not to sue the principal debtor but still collects money through other means.

Section 139

Acts or omissions of creditor which affect the rights of surety

Section 141

If creditor looses or, without consent, parts with the security given to him, suerity is discharged from liability upto the extent of value of security

Sections dealing with the discharge of surety

Section 130 (continuous guarantee)

Section 131 (death)

Section 133 (Variance)

Section 134: (creditor—discharge of principal debtor)

Section 135 (Extension/refusal to sue)

Section 137 (Collect from other means)

Section 139 (Creditor—Act or omission which affects surety)

Section 141 Security)

Section 140

Right to subjugation—After discharge of debt, surety steps into shoes of creditor

Section 145

Right to indemnity

Section 146

equal contribution (Exception—147)

Section 147

Exception to 146

Fixed maximum limit of each severity

Section 128

Liability of surety:

Coextensive, need not exhaust all remedies, composite

Section 148

Section 148 deals with the delivery of bailed goods by one person to another person for specific purposes and will be returned back or discarded at the decision of the person who delivered those goods

Bailer

Person who delivered the goods

Bailee

Person who Accepts those goods

Essentials of Bailment

1. Delivery of goods

2. Purpose

3. Return of goods

Actual Delivery

Physical movement of goods for bailment

Constructive delivery

Due to circumstances—not physical movement, just transfer of possession.

Ex: Finder of goods

Gratuitous bailment

Bailment made without any Consideration for the benefit of the bailor or for the benefit of the bailee is called Gratuitous Bailment

Non Gratitous Bailment

Bailment made without any Consideration for the benefit of the bailor or for the benefit of the bailee is called Gratuitous Bailment

Section 150

Duty to disclose defects

Gratuitous: if he is unaware, then not liable

Non-gratuitous: Either way, he is liable

Section 159

The contract of bailment also includes the contract of indemnity—the return of the thing earlier than lent for (gratuitous) must compensate.

Sections 151 & 152

Duty to provide reasonable care

Section 153 - 154

Duty not to use in unauthorised manner

155,156,157

Duty not to Mix Goods:

155: Do not mix unless consented.

156 - Separable (put money for separating)

I157 - inseparable goods : Pay whole cost

section 160

once purpose is fulfilled, return on time

Section 161

Bailee's responsibility if goods are not duly returned

Section 166

If bailee didnt know that the bailer was not the original owner, then original owner cannot sue bailee when done in good faith

Section 158

Right to recover expense on the bailment for maintenance of goods

Section 164

if bailee finds out that the bailer was not the original owner, they can claim compensation

Section 170

Right to Lein (Particular Lein)—bailee's skill and labour require compensation—can keep bail in hold until obtaining compensation

Section 180 & 181

Bailer and bailee have right to get money from wrongdoer who damaged the goods (Subbailee)

Section 169

finder of goods has right to sell the perishable goods if they have done a reasonable search

Section 168

Right to lien—for finder of goods for maintenance costs and for any reward released by bailer

Contract of pledge

A contract of pledge is the delivery of goods from one person to another person to be kept as a security

Pawner/Pledger

Security is kept in exchange of something—collects the debt

Pawnee / Pledgee

Gives security in exchange of money

Section 178

Exceptions where non-owners can make a pledge: the agent acting on behalf of the principal (buisness owner - But needs consent of owne) however, if without consent the third party accepted it in good faith - contract is still valid

Section 178-A

Exceptions where non-owners can make a pledge:

Person in possession of goods under voidable contracts

Section 179

Exceptions where non-owners can make a pledge:

Pledge with limited interest (However, that pledgee is only liable to that amount and rest must be paid by the original pledgee).

Rights of the pawner

Right to seek preservation and maintenance: Right sought by pawnee to take care of pledged goods

Right to take the possession back

Rights of pawnee

Right to return the goods (section 173)

Particular lien (Section 174)

Right to recover extraordinary expenses

Section 173

Right to return the goods:

If pawner doesnt pay forever, the pawnee should send notice regarding sale, and then he can sell the pledged goods

Section 174

If there are 2 loans, then the pawner cannot withhold one security for the non-repayment of a different loan.