Unit 2
Contract of Indemnity
According to Sec (124), 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, is called as a
The person who promises to make god of the loss is called as the “indemnifier”
(promisor)
The person whose loss is to be made good is called the “indemnified” or “indemnity holder” (promisee)
(Eg.: A and B go into a shop. B says to
Rights of indemnity holder
Sec 125 deals with rights of indemnity holder when sued. According to it, an indemnity holder is entitled to recover from the
promisor :
1. All the damages which he may compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.
Contract of Guarantee
According to sec 126, “A contract of
guarantee is a contract to perform the promise or discharge the liability, of a third person in case of his default.”
Eg: S requests C to lend Rs 5000 to P,
The person who gives guarantee is called as the “surity”.
The person inn respect of whose default the guarantee is given is called as
“principal debtor”
Features of contract of
guarantee
1. Concurrence : A contract of guarantee requires the concurrence of of all the parties to it. (principal debtor, the
creditor and the surity)
2. Primary liability in some person : there must be a primary liability in some person other than surity. If that
3. Essentials of valid contract : A contract of guarantee must have all the essential
Difference between contract of indemnity and contract of guarantee
1. There are two parties to the contract, indemnifier and indemnified.
there are three parties to the contract, the creditor, principal debtor, and surety
2. The liability of the indemnifier to the indemnified is primary.
3. There is only one contract, between the indemnifier and indemnified
Kinds of guarantee
1. Specific guarantee : When a guarantee extends to a single transaction or debt, is called as specific or simple guarantee. It comes to an end when the guaranteed debt is duly discharged or the promise is duly performed.
2. Continuing guarantee : When a guarantee extends to a series of
transactions, then it is a continuing guarantee.
Contract of Agency
The law relating to Agency is contained in chapter X (sec 182 to 238) of the indian contract act 1872.
A person who has capacity to contract may enter into contract, either by himself or
According to sec 182 “An agent is a person employed to do any act for another, or to represent another in dealing with third
persons”.
The person for whom such act is done, or who is so represented is called as
Principal.
Essentials of Agency
1. Agreement between principal and agent 2. Intension of an agent to act on behalf of
the principal
Rules of Agency
1. Whatever the transactions a person can do personally, he can do through an
agent.
Creation of agency
The relationship of principal and agent may arise
1. Agency by express agreement : Normally the authority given by a principal to his
agent is an express authority which
enables the agent to bind the principal by acts done within the scope of his authority. The agent may in such case, be appointed either by word of mouth or by an
2. Agency by implied agreement : Implied agency arises from the conduct, situation or relationship of parties. It may be
inferred from the circumstances of the case, and things spoken or written in ordinary course or dealing.
Eg: A and P are brothers. A lives in Delhi while P lives in Meerut. A with the
3. Agency by ratification: A person may act on behalf of another without his knowledge or consent.
Eg: A may act as P’s agent though he has no prior authority from P.
Classification of Agents
1. Special Agent : A special agent is one who is appointed to perform a particular act or to represent his principal in some particular transaction. Such an agent has a limited authority.
2. General agent : A genera agent is one
who has authority to do all acts connected with a particular trade or business. Such authority of an agent is continuous until it is put to an end.
3. Universal agent : A universal agent is one whose authority to act for the principal is unlimited. He has authority to bind his
Rights and duties of Agent
Rights of an Agent
• Right of retainer
• Right to receive remuneration • Right of lien
Duties of an Agent
• To carryout the work according to the directions given by principal
• To carry out the work with reasonable care
and skill
• To render proper accounts to principal • To communicate in case of difficulty
• To pay the sums received for principal
Rights and duties of principal
Rights of principal
1. To recover damages
2. To obtain an account of secret profits and recover them
Duties of principal
1. To indemnify the agent against the consequences of all lawful acts
2. To indemnify the agent against the
consequences of acts done in good faith 3. To indemnify agent for injury caused by
Termination of agency
Section 201 describes the modes of
termination of agency. Termination can happen in the following ways :
(1) By act of parties
1. Agreement
(2) By operation of law
1. performance of the contract 2. Expiry of time
3. Death of either party 4. Insanity of either party 5. Insolvency
Sale of Goods Act 1930
According to Section 4, a contract of sale
means “ a contract where the seller transfers or agrees to transfer the property in goods to the buyer for a price.”
Sale : under a contract of sale the property in goods is immediately transferred from the seller to the buyer, this is called as sale
Agreement to sell: The transfer of goods is to take place at a future time or subject to the fulfillment of certain conditions, then the contract is called an agreement to sell.
Eg. A agrees with B that he will sell to B his horse on 21st march for a sum of rs 1000.
General principles for contract of sale of goods
Essentials of contract of sale
• Two parties
• Goods
• Ownership of goods
Difference between sale and
agreement to sell
1. Nature of contract : sale is an executed contract. Agreement to sell is an
executory contract
3. Sellers right of resale : In a sale, since
there is immediate transfer of the goods to the buyer, the seller has no right to resell. In an agreement to sell, the goods remains
Sale distinguished from other
contracts
1. Hire purchase 2. Bailment
Hire Purchase
A hire purchase is a contract where by the owner of the goods lets them on hire to another person called hirer or hire
Sec 148 defines bailment as the delivery of goods by one person to another for some purpose, upon a contract, that they shall return, when the purpose is accomplished, according to the directions of the person delivering them.
Eg. A delivers a piece of cloth to B, a tailor, to be stitched into a suit. There is a
Barter system
Gift
Conditions and warranties
Before a contract of sale enter into, a seller frequently makes representations or
statements with reference to the goods which influence the buyer to clinch the bargain. Such representations or
According to [sec. 12(2)], a condition is a stipulation which is essential to the main
purpose of the contract. The breach of which gives rise to a right to treat the contract as repudiated.
Eg. K had sought the technical advice of M, a motor car dealer, about which make of car would be suitable for touring purpose. M advised him to buy a
Definition of warranty
According to Sec 12 (3), a warranty is a
stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.
Eg. In a sale of a used car, the seller
The use of words ‘essential’ and ‘collateral’ in the definitions convey the difference in the degree of importance of a term
Conditions and warranties are of two types
Implied conditions
1. Condition as to title 2. Sale by description
3. Condition as to quality or fitness 4. Condition as to merchantability 5. Condition implied by custom
6. Sale by sample
Implied warranties
1 warranty of quiet possession
2. Warranty of freedom from encumbrances 3. Warranty to disclose dangerous nature of
Performance of contract of sale
It is the duty of the seller to deliver the
Delivery
Section 2(2) defines delivery of goods as
Modes of delivery
There are 3 modes of delivering the goods to the buyer
1. Actual delivery
2. Symbolic delivery
Actual delivery
This is the physical delivery of the goods by the seller.
The big machine may not change its
Symbolic delivery
This will involve the delivery not of the goods but of something which represents the
goods.
Constructive delivery
A person may be holding goods on behalf of the seller, such as transporter or the
warehouse owner. If such a person
acknowledges that he would be holding them for the buyer, this would become a constructive delivery of goods.
Rules to delivery of goods
1. Mode of delivery (sec 33)
2. Delivery and payment – concurrent conditions (sec 32)
3. Effect of part delivery (sec 34)
4. Buyer to apply for delivery (sec 35) 5. Place of delivery [sec 36(1)]
6. Time of delivery [sec 36(4)]
7. Goods in possession of third party [sec 36(3)] 8. Cost of delivery [sec 36(5)]
9. Delivery of wrong quantity (sec 37) 10. Installment deliveries (sec 38)
1.Mode of delivery
Delivery should have the effect of putting the goods in the possession of the buyer or his duly authorized agent.
2. Delivery and payment – concurrent conditions
delivery of the goods and payment of the price must be according to the terms of the contract. Unless otherwise agreed, delivery of goods and payment of price are concurrent conditions, i.e., the seller shall be ready and willing to give
possession of the goods to the buyer in
exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of goods.
3. Effect of part delivery
A delivery of part of the goods in progress of the delivery of the whole, has the same effect, for the purpose of passing the property in such goods, as a
delivery of the whole. But a delivery of the goods, with an intension of serving it from the whole, does not operate as delivery of the remainder.
Eg. S sold five goods to B. B received two goods, paid for it and refused to accept the other three. (Held, this
4. Buyer to apply for delivery
Apart from an express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery.
5. Place of delivery
6. Time of delivery
the seller is bound to send the goods to the buyer within a reasonable time. But where the contract uses word like “without loss of time”, quick and immediate delivery is
7. Goods in possession of a third party
when at the time of the sale the goods are with a third party, there is no delivery by the seller to the buyer until such third party acknowledges to the buyer that he holds them on his behalf.
8. Cost of delivery
9. Delivery of wrong quantity
the delivery of wrong quantity of goods contracted for should be strictly according to the terms of the contract. A defective delivery entitles the buyer to reject the
goods.
The three different contingencies which may arise in case of a defective delivery, i.e.,
1. Delivery of goods less than contracted for
2. delivery of the goods in excess of the quantity contracted for
10. Installment deliveries
11. Deliver to a carrier
The seller must enter into a reasonable contract with the carrier on behalf of the buyer for the safe transmission or custody of the goods. If the seller omits so to do
and if the goods are destroyed, the buyer may decline to treat the delivery to the
carrier.
Rights and duties of the buyer
Rights of the buyer
1. Right to have delivery as per contract 2. Right to reject the goods
3. Right to repudiate
4. Right to notice of insurance 5. Right to examine
Duties of buyer
1. Duty to accept the goods and pay for them in exchange for possession.
2. Duty to apply for delivery
3. Duty to demand delivery at a reasonable hour 4. Duty to accept installment deliveries and pay
for it
5. Duty to take risk of deterioration in the course of transit
6. Duty to intimate the seller where he rejects the goods.
Unit 2
Syllabus
Contracts II
Indemnity and guarantee Contract of agency
Sale of goods act 1930 : general principles
Conditions and warranties
