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Indian Contract Act- 1872- IIUNIT- I What is contract of Indemnity? Explain the right of indemnity holder. Distinguish between contracts of Indemnity & Contract of Guarantee. Discuss the nature, rights and liabilities of a Surety. Explain the essential feature of Guarantee. What are the liab...

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Indian Contract Act- 1872- II UNIT- I 1. What is contract of Indemnity? Explain the right of indemnity holder. Distinguish between contracts of Indemnity & Contract of Guarantee. 2. Discuss the nature, rights and liabilities of a Surety. 3. Explain the essential feature of Guarantee. What are the liabilities & rights of the Surety? Can the surety discharge from his liability? What is the difference between contract of Guarantee and Indemnity? 4. Liability of surety is co-extensive with that of Principal debtor. UNIT-II 1. Explain the standard of care required of a bailee in respect of goods bailed to him. 2. What can be pledged? Who can make the valid Pledge? Differentiate between Pledge & Lien. 3. What is bailment? What are the essentials of bailment? What are the duties & rights of Finder of lost goods as a bailee? 4. What is Pledge? Distinguish between Pledge and Bailment. UNIT – III 1. What is Agency? What are the various modes of creating Agency relationship? Also describe the different kinds of Agent. 2. What are the circumstances in which agency is terminated? 3. Discuss fully the extent of Principals liabilities to third parties for the act of Agent. 4. Define the term sub-Agent. How for is principal bound by the acts of sub-agent? Distinguish between sub-agent and substituted Agent. UNIT- IV 1. Sharing of profits in business is not conclusive evidence of the existence of Partnership. Discuss with the help of relevant case law. 2. How the firm is registered? What is the effect of Registration & Non registration of firm? 3. Distinguish between partnership business and joint Hindu family business. 4. Discuss the essentials of Partnership firm. 5. Define the principal of Holding out. 6. What are the provisions of dissolution of partnership Firm? UNIT- V Write short notes on the followings:i)

Continuing Guarantee.

ii)

Co-Sureties.

iii)

Feature of Bailment.

iv)

Rights of Pawnee to redeem.

v) vi)

Kinds of Agent. Agency by Ratification.

vii)

Nature of Partnership.

viii)

Registration of Firm.

ix) x)

Termination of Agency. Rights & duties of finder of lost goods.

xi)

Modes of discharge of surety.

xii)

Doctrine of Holding out.

xiii)

Minor admitted to benefit of partnership.

xiv)

Dissolution of firm.

xv)

General lien & Particular lien.

xvi)

Difference between Hypothecation & Pledge.

xvii) Co-ownership & Partnership. xviii)Partnership at will. xix) xx) xxi)

Dormant Partner. Ostensible authority. Sub Agent & Substituted Agent.

xxii) Pledge &Mortgage.

1. Define the Contract of Indemnity. Distinguish between contract of Indemnity & contract of guarantee. And explain the rights of indemnity holder. Introduction: - A Contract of indemnity is a direct engagement between two parties whereby one promises to save another from harm. According to section 124 of the Indian Contract Act a contract

of indemnity means,” a contract by which 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.” This gave a very broad scope to the meaning of indemnity and it included promise of indemnity due to loss caused by any cause whatsoever. Thus any type of insurance except life insurance was a contract of indemnity however Section 124 of Indian Contract Act 1872 makes the life insurance was a contract of indemnity. However the Contract Act -1872 makes the scope narrower by defining the contract of indemnity. DEFINITION: - As provisions made in section 124 of the Indian Contract Act-1872 says that, “whenever one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of other by the conduct of the any other person is called a Contract of Indemnity.” New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao & Others, 1997, A Contract of indemnity is a direct engagement between two parties thereby one promises to save the other harm. It does not deal with those classes of cases where the indemnity arises from loss caused by events or accidents which do not or may not depend on the conduct of indemnifier or any other person. ESSENTIAL ELEMENTS:- The following are the essentials of the Contract of Indemnity:1. There must be a loss. 2. The loss must be caused either by he promisor or by any other person. 3. Indemnifier is liable only for the loss. Thus it is clear that this contract is contingent in nature and is enforceable only when the loss occurs. RIGHTS OF INDEMNITY HOLDER The promisee in a contract of indemnity acting within the scope of his authority is entitled to recover from the promisor so under Section 125 of the Act defines the rights of an indemnity holder which are as under :1. Right of recovering Damages: - All the damages that he is compelled to pay in a suit in respect of any mater to which the promise of indemnity applies. 2. Right of recovering Costs: - All the costs that he is compelled to pay in such suit if in bringing o defending it he did not contravene the orders of the promisor and has acted as it would have been prudent for him to act in the absence of the contract of indemnity or if the promisor authorised him in bringing or defending the suit. 3. Right of recovering sums :- All the sums which he may have paid under the terms of a compromise in any such suite if the compromise was not contrary to the orders of the promisor and was one which would have been prudent for the promisee to make in the absence of the contract of indemnity. In another case of Mohit Kumar saha v/s New India Assurance Co.-1997 It was held that the indemnifier must pay the full amount of the value of the vehicle lost to theft as given by the Surveyor. Any settlement at the lesser value is arbitrary and unfair and violates art.14 of the constitution. DIFFERENCE BETWEEN INDEMNITY & GUARANTEE

INDEMNITY 1. In indemnity there are two, one who is indemnified and the other indemnifier. 2. It consists of only one contract under which indemnifier promises to pay in the event of certain loss. 3. The contract of indemnity is made to protect the promise against some likely loss. 4. The liability of the indemnifier in a contract of indemnity is a primary one. GUARANTEE There are three parties, Principal debtor, surety and the Creditor.

There are three contracts between surety, principal debtor and creditor.

The object of contract of guarantee is the security of the creditor.

In guarantee the liability of surety is only a secondary, when principal debtor default. CONCLUSTION:- It has been noted above that section 124 recognises only such contract as contract of indemnity where there is a promise to save another person from loss which be caused by the conduct of the promisor himself or by conduct of any other person. It does not cover a promise to compensate for loss not arising due to human agency. If under a contract of insurance an insurer promises to pay compensation in the event of loss by fire. Such contracts are valid contracts as being contingent contracts under sec.31.

2. Discuss the nature, rights and liabilities of a surety. INTRODUCTION:- The surety who is entitled to be reimbursed by the principal debtor for the amount paid by him on his behalf. The liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract under section 128.

NATURE OF SURETY:- Section 128 surety liability is co-extensive with that of the principal debtor which means that on a default having been made by the principal debtor the creditor can recover from surety the all what he could have recovered from the principal debtor. Example:- The principal debtor makes a default in the payment of a debt of Rs.10,000.00, the Creditor may recover from the surety the sum of Rs.10000/- plus interest becoming due thereon as well as the amount spent by him in recovering that amount. LIABILITY OF SURETY:- A bare perusal of section 128 of the Contract Act would make it clear that the liability of a surety is co-extensive with that of he principal debtor. The word co-extensive denotes that extent and can relate only to quantum of the principal debt. Refer a case of Industrial Financial Corporation of India v/s Kannur Spinning & Weaving Mills Ltd, 2002: However the liability of the surety does not cease merely because of discharge of the principal debtor from liability. Bank of Bihar Ltd. v/s Damodar Prasad, 1969: The Supreme Court held that the liability of the surety is immediate and cannot be defended until the creditor has exhausted all his remedies against the principal debtor. Maharashtra Electricity Board Bombay v/s Official Liquidator and Another, 1982: under a letter of guarantee the bank undertook to pay any amount not exceeding Rs.50000/- to the Electricity Board. It was held that the Bank is bound to pay the amount due under the letter of guarantee given by it to the Board. RIGHTS OF SURETY:- The surety has certain rights against the principal debtor, the creditor and the co-sureties. His right against each one of them are being discussed as under :1. Right of Subrogation: Under section 140 when a principal debtor makes a default in the performance of his duty and on such default the surety makes the necessary payment or makes performance of all what he is liable. Firstly the surety can claim indemnity from the principal debtor secondly he is also entitled to the benefits of every security which the creditor has against the principal debtor. Case of Mukesh Gupta v/s Sicorn Ltd. Mumbai, 2004. 2. Right of Indemnity against the principal debtor: Similarly as above when a principal debtor makes a default the surety has to make the payment to the creditor. After making the payment he can recover the same from him under section 145 of the act. 3. Right against Creditor to take back the securities deposited by the Principal debtor:- After making the dues the surety has all the rights which are available to the creditor against the principal debtor under section 141 of the act. He is entitled to the benefit of every security which the creditor has against the principal debtor. 4. Surety has no right to goods in hypothecation:- In case there is hypothecation of the goods the goods remain in the possession of the borrower the surety cannot invoke the provision of section 141 in such case. Refer a case of Bank of India v/s Yogeshwar Kant Wahhera, 1987. CONCLUSION:- Keeping in view the above facts it is revealed that the surety’s nature, liabilities and rights are of such types once he stands surety for any debt he will remain bound till the amount is repaid by the principal debtor. Although the surety has some rights such as right of subrogation, indemnity and to taking back the securities but even though there are more complications in this regard. So one should stand surety for a person who have some qualities of good pay master.

3 The liability of the surety is co-extensive with that of Principal debtor. INTRODUCTION:- Surety’s Liability : The liability of the surety is co-extensive with that of the principal debtor, unless it otherwise provided by the contract for example A guarantees to B for the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable not only for the amount of the bill but also for any interest and charges which may have become due on it. DEFINITION OF CO-EXTENSIVE:- Section 128 of the Indian contract Act provides the following definition in respect of the surety liability:“It says that the liability of the surety is co-extensive with that of the principal debtor unless it otherwise provided by the Contract.” A case of law in this regard is of Andhra Bank Soryapeet v/s Anantnath Goel-1991: It was held by the court that where there were joint promisors and consideration was paid by only one of them the other piomisors were equally liable to pay amount. The liability of son was co-extensive with his father who was principal debtor in view of section 127 and 128 of the Indian contract Act. The gist of some the leading cases in which the liability of the surety is co-extensive are given below to strengthening the answer of the question:-

· Kellappan Nambiar v/s Kanhi Raman-1957: In this case that if the principal debtor happens to be a minor and the agreement made by him is void, the surety too cannot be made liable in respect of the same because the liability of the surety is co-extensive with that of principal debtor. It has been held that the guarantee of the loan or an overdraft to an infant is void because the loan to the infant itself is void. · That in case of State Bank of India v/s V.N. Anantha Krishnam-2005: that in view of the provision of section 128 of Act the Presiding officer was not correct in giving directions to the Bank to proceed against the property because cash credit facility and the liability of surety was co-extensive with that of principal debtor. · In a case of Bank of Bihar Ltd. v/s Dr.Damodar Prasad -1969: The Supreme Court held that the liability of the surety is immediate and cannot be defended until the creditor has exhausted all his remedies against the principal debtor. · A case of Industrial Financial Corporation of India v/s Kannur Spining & Weaving Mills Ltd.-2002: It was held that the liability of surety does not cease merely because of discharge of the principal debtor from liability. · In a case of Harigobind Aggarwal v/s State Bank Of India-1956: It was held that the principal debtor liability is reduced e.g. after the creditor has recovered a part of the sum due from him out of his property the liability of the surety is also reduced accordingly.

CONCLUSION:- On deeply going into depth of provisions laid down in the Act it is revealed that surety liability is co-extensive with that of principal debtor means that his liability is exactly the same as that of the principal debtor. Suppose if the default having made by the principal debtor the creditor can recover the same from the surety all what he could have recovered from the principal debtor.

4. What do you understand by contract of guarantee? How does it differ from contract of Indemnity? INTRODUCTION: - The contract of guarantee may be an ordinary or some different type of guarantee which is different from an ordinary guarantee. Guarantee may be either oral or written. Basically it means that a contract to perform the promise or discharge the liability of third person in case of his default and such type of contracts are formed mainly to facilitate borrowing and lending money which based on the following facts :i)

Surety is the person by the whom the guarantee is given.

ii)

Principal debtor is the person from whom the assurance is given.

iii)

Creditor is the person to whom the guarantee is given.

DEFINITION: - “A contract of guarantee is a contract to perform the promise or to discharge the liabilities of a third person in case of his default. The person who gives the guarantee is called surety, the person in respect of whose default the guarantee is given is called Principal Debtor and the person to whom the guarantee is given is called creditor. A guarantee may be either oral or written.” ILLUSTRATION: - A promises to a shopkeeper C that A will pay for the items being bought by B if B does not pay this is a contract of guarantee. In case if B fails to pay C can sue A to recover the balance the same was held in the case of Birkmyr v/s Darnell-1704, the court held that when two persons come to shop one person buys and to give him credit the other person promises, “ if he does not pay, I will”, this type of a collateral undertaking o be liable for the default of another is called a contract of guarantee.

ESSENTIALS: - The following are the essential elements of Guarantee:1. Existence of Creditor, Surety, and Principal debtor: - The economic function of a guarantee is to enable a credit-less person to get a loan or employment or something else. Thus there must exist a principal debtor for a recoverable debt for which the surety is liable in case of the default of the principal debtor. In the case of Swan v/s Bank of Scotland -1836, It was held that a contract of guarantee is a triplicate agreement between the creditor, the principal debtor and the surety. 2. Distinct Promise of Surety: - There must be distinct promise by the surety to be answerable for the liability of the Principal debtor. 3. Liability must be legally enforceable: - Only if the liability of the principal debtor is legally enforceable, the surety can be made liable. For example a surety cannot be made liable for a debt barred by Statute of Limitation. 4. Consideration: - As with any valid contract the contract of guarantee also must have a consideration. The consideration in such contract is nothing but anything done or the promise to do something for the benefit of the principal debtor. The section 127 of the Act clarify as under :“Anything done or any promise made for the benefit of principal debtor is sufficient consideration to the surety for giving the guarantee.” Illustrations: - 1. A agrees to sell to B certain goods if C guarantees for payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver goods to B. This is sufficient consideration for C’s promise. 2. A sells and delivers goods to B. C afterwards requests A to forbear to sue B for an year and promise if A does so he will guarantee the payment if B not pay. A forbears to sue B for one year. This is sufficient consideration for C’s guarantee. 5. It should be without misrepresentation or concealment: - Section 142 of the Act specifies that a guarantee obtained by misrepresenting facts that are material to the agreement is invalid, and section 143 specifies that a guarantee obtained by concealing a material fact is invalid as well. Illustration :- 1. A appoints B for collecting bills to account for some of the bills. A asks B to get a guarantor for further employment. C guarantees B’s conduct but C is not made aware of B previous mis-accounting by A. B afterwards defaults. C cannot be held liable. Illustration: 2- A promise to sell Iron to B if C guarantees payment. C guarantees payment however, C is not made aware of the fact that A and B had contracted that B will pay Rs.5/- higher that the market price. B defaults. C cannot be held liable A case of London General Omnibus V/s Holloway- 1912: A person was invited guarantee an employee, who was previously dismissed for dishonesty by some employer. This fact was not told to the surety. Later on the employee embezzled funds but the surety was not held liable. CONCLUSION It is noted from the above mentioned facts that the contract of guarantee is a triplicate agreement between Creditor, Surety and the Principal debtor. A person who stands for surety known as guarantor for a third person (principal debtor) who in case of his default to fulfil his promise or to discharge the liabilities. The surety or guarantor has to make a distinct promise for payment of the liabilities of the Principal debtor which must be legally enforced.

5. What is continuing Guarantee? Under what circumstances it can be revoked? INTRODUCTION: - A guarantee which extends to a series of transactions is called continuing guarantee. A guarantee may be an ordinary guarantee or a continuing guarantee is almost different from an ordinary guarantee. EXAMPLE:- A in consideration that B will employ C in collecting of Rent of B’s Zamidari. B promises that he is responsible to the amount of Rs.5000/- for due collection and payment by C of those rents. This is a continuing guarantee. 2. A guarantees payment to B, a tea-dealer, for any tea that C may buy from him from time to time amount of Rs.100/-. Afterwards, B supplies C tea for the amount of Rs.200/- and C fails to pay. A’s guarantee...