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Special Types of ContractsContracts of Indemnity and
Guarantee
A contract of indemnity is one whereby a person promises to save
the other from loss caused to him by the conduct of the promisor
himself or ofany third person.For example,a shareholder executes an
indemnity bond favouring the company thereby agreeing to indemnify
the company for anyloss caused as a consequence of his own act.The
person who gives the indemnity is called the 'indemnifier' and the
person for whose protection it isgiven is called the
'indemnity-holder' or 'indemnified'. A contract of indemnity is
restricted to cover the loss caused by the promisor himself or by
athird person.The loss must be caused by some human agency.Loss
arising from accidents like fire or perils of the sea are not
covered by a contractof indemnity.
A contract of 'guarantee' is a contract,whether oral or
written,to perform the promise,or discharge the liability,of a
third person in case of hisdefault. A contract of guarantee
involves three persons,viz. a person who gives the guarantee is
called the 'surety'; the person in respect of whosedefault the
guarantee is given called the 'principal debtor'; and the person to
whom the guarantee is given is called the 'creditor'. A contract
ofguarantee is a conditional promise by the surety that if the
principal debtor defaults he shall be liable to the creditor.
Difference between Indemnity and Guarantee:-
In a contract of indemnity there are two parties i.e.
indemnifier and indemnified. A contract of guarantee involves three
parties i.e.creditor, principal debtor and surety.
An indemnity is for reimbursement of a loss, while a guarantee
is for security of the creditor.
In a contract of indemnity the liability of the indemnifier is
primary and arises when the contingent event occurs. In case of
contract ofguarantee the liability of surety is secondary and
arises when the principal debtor defaults.
The indemnifier after performing his part of the promise has no
rights against the third party and he can sue the third party only
if thereis an assignment in his favour. Whereas in a contract of
guarantee, the surety steps into the shoes of the creditor on
discharge of hisliability, and may sue the principal debtor.
Contracts of Bailment and Pledge
A 'bailment' is the delivery of goods by one person to another
for some purpose upon a contract that they shall, when the purpose
isaccomplished,be returned or disposed of according to the
directions of the person delivering them. The person delivering the
goods is called the'bailor' and the person to whom the goods are
delivered is called the 'bailee'. The examples of a contract of
bailment are:- delivering a watch orradio for repair; leaving a car
or scooter at a parking stand; leaving luggage in a cloak room;
delivering gold to a goldsmith for making ornaments;leaving
garments with a dry cleaner,etc. The essence of bailment is the
transfer of possession. The ownership remains with the owner. There
cannotbe a bailment of immovable property.
A 'pledge' is a bailment of goods wherein the goods are
delivered as a security for payment of a debt or performance of a
promise.The bailor iscalled the 'pledgor' or 'pawnor' and the
bailee is called the 'pledgee' or 'pawnee'. Thus, pledge is a
special kind of bailment. Pledge can be made onlyof movable
properties. In order to make the pledge legally valid it is
essential that the pledgor has the legal right or title to retain
the goods.
Difference between Bailment and Pledge:-
Purpose:- A pledge is made for a specific purpose, while
bailment can be made for any purpose.
Property:-
In bailment, the bailee gets only the possession of goods
bailed. The ownership remains with the bailor.
In the case ofpledge, the pledgee acquires a special property in
the goods pledged whereby he gets possession coupled with the power
of sale, on
default.
Right of sale :- Bailee can exercise a lien on the goods bailed.
He has no right of sale. But in case of a pledge, the pledge can
sell thegoods after due notice to pawner.
Contracts of Agency
An 'Agent' is a person employed to do any act or to represent
another in dealings with third persons. The person who employs the
agent and forwhom such act is done,or who is so represented,is
called the 'principal'. The relation between the agent and the
principal is called 'Agency'. It is only
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when a person acts as a representative of the other in the
creation,modification or termination of contractual
obligations,between that order andthird persons,that he is an
agent. The essence of a contract of agency is the agent's
representative capacity coupled with a power to affect the
legalrelations of the principal with third persons.
Contracts of agency are based on two important principles:-
Whatever a person can do personally shall also be allowed to be
done through an agent except in case of contracts involving
personalservices such as painting, marriage, singing, etc.
He who does an act through a duly authorised agent does it by
himself i.e. the acts of the agent are considered the acts of the
principal.
