SPECIAL CONTRACT Unit 4
UNIT 4: SPECIAL CONTRACTS
UNIT STRUCTURE
4.1 Learning Objectives
4.2 Introduction
4.3 Contract of Indemnity
4.4 Contract of guarantee
4.4.1 Kinds of guarantee
4.5 Bailment
4.5.1 Kinds of bailment
4.6 Pledge
4.7 Let Us Sum Up
4.8 Further Readings
4.9 Answers To Check Your Progress
4.10 Model Questions
4.1 LEARNING OBJECTIVES
After going through this unit, you will be able to-
l Discuss the concept of contract of Indemnity
l Discuss the concept and kinds of contract of Guarantee
l Discuss the difference between contract of Indemnity and contract
of Guarantee
l Explain the concept and kinds of Bailment
l Discuss the rights and duties of Bailor and Bailee
l Explain the concept of pledge and discuss the valid elements of
pledge
l Discuss the right and duties of pledger and pledge.
4.2 INTRODUCTION
Special contracts are contained in sections 124 to 238 of the Indian
Contract Act. These special contracts are Indemnity, Guarantee , Bailment,
Pledge and Agency. In this unit we are going to discuss about contract of
Business Regulatory Framwork 63
,Unit 4 SPECIAL CONTRACT
indemnity, guarantee, bailment and plege. The contract of indemnity and
guarantee are the special types of contract which help from protection against
loss in the form of a promise to pay for loss of money or goods. Section 124
to 147 of the Indian Contract Act, 1872 discuss about contract of Indemnity
and Guarantee. Through this unit, you will also be able to know the kinds of
guarantee and also understand about the concept of surety and creditor.
Thus, through this unit, you will able to know the detail concept of special
type of contract indemnity and guarantee, bailment and pledge as stipulated
under the Indian Contract Act, 1872.
4.3 CONTRACT OF INDEMNITY
The contract of indemnity is the compensation of security against
loss of money or goods. The principles of general law of contract are equally
applicable for it as under the Indian Contract Act, 1872. Under contract of
indemnity the person who indemnifies or pays the loss is known as
‘indemnifier’ and in whose favor such promise is made to pay the loss is
known as ‘indemnified’ or ‘indemnity holder’. Under Section 124 of the
Indian Contract Act, 1872 define a contract of indemnity as ‘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 conduct of any other person’. Thus,
it is valid when-
l there is a promise
l to save another person from loss or make good the loss
l which may be caused by the conduct of the promisor himself or by
the conduct of any other person
l the promisor undertakes to make good the loss
l it covers indemnity for loss caused by human only
P contract to indemnify a sum of Rs 5000 to Q for the loss which
may be caused or any proceeding which may be carried on by R against Q.
This is a contract of indemnity.
Hence, indemnity for loss caused due to fire or in the death of a
person or expiry of stipulated period as in case in insurance do not fall under
64 Business Regulatory Framwork
, SPECIAL CONTRACT Unit 4
Sec 124 of the Indian Contract Act, 1872. It is because the life of a person
cannot be valued and the question for amount of loss suffered by the assured
does not arise.
Definition is not exhaustive
The definition of contract of indemnity given by Sec. 124 of the
Contract Act is not exhaustive. Contract of indemnity includes:
(a) only express promise to indemnify and
(b) cases where loss is caused by the conduct of the promisor himself or
by the conduct of any other person.
It does not include:
(a) implied promise to indemnify and
(b) cases where the loss is caused by accident and event not depending
on the conduct of the promisor or any other person.
Rights of the indemnity-holder when sued
The indemnity holder is entitled to the following rights:
1. Indemnity-holder is entitled to recover all damages which he might
have been compelled to pay in any suit in respect of a matter covered
by the contract.
2. Indemnity holder is entitled to recover all costs incidental to the
institution or defending of the suit. But the party indemnified cannot
recover costs when he has not acted as a prudent man in defending
the action against him or has not been authorised by the indemnifier
to defend the suit or where the costs incurred have been unreasonable
in amount.
3. Indemnity holder is entitled to recover all sums paid under any
compromise of any such suit, provided the compromise was not
contrary to the directions of the promisor and it has been made on the
best available terms. Promisee must have acted prudently in making
such a promise. (Sec. 125).
It is to be noted that a contract of indemnity being a type of the general
contract and therefore, must satisfy all essentials of a valid contract such
as competent parties, free consent, lawful object etc., otherwise it will not
be valid.
Business Regulatory Framwork 65
UNIT 4: SPECIAL CONTRACTS
UNIT STRUCTURE
4.1 Learning Objectives
4.2 Introduction
4.3 Contract of Indemnity
4.4 Contract of guarantee
4.4.1 Kinds of guarantee
4.5 Bailment
4.5.1 Kinds of bailment
4.6 Pledge
4.7 Let Us Sum Up
4.8 Further Readings
4.9 Answers To Check Your Progress
4.10 Model Questions
4.1 LEARNING OBJECTIVES
After going through this unit, you will be able to-
l Discuss the concept of contract of Indemnity
l Discuss the concept and kinds of contract of Guarantee
l Discuss the difference between contract of Indemnity and contract
of Guarantee
l Explain the concept and kinds of Bailment
l Discuss the rights and duties of Bailor and Bailee
l Explain the concept of pledge and discuss the valid elements of
pledge
l Discuss the right and duties of pledger and pledge.
4.2 INTRODUCTION
Special contracts are contained in sections 124 to 238 of the Indian
Contract Act. These special contracts are Indemnity, Guarantee , Bailment,
Pledge and Agency. In this unit we are going to discuss about contract of
Business Regulatory Framwork 63
,Unit 4 SPECIAL CONTRACT
indemnity, guarantee, bailment and plege. The contract of indemnity and
guarantee are the special types of contract which help from protection against
loss in the form of a promise to pay for loss of money or goods. Section 124
to 147 of the Indian Contract Act, 1872 discuss about contract of Indemnity
and Guarantee. Through this unit, you will also be able to know the kinds of
guarantee and also understand about the concept of surety and creditor.
Thus, through this unit, you will able to know the detail concept of special
type of contract indemnity and guarantee, bailment and pledge as stipulated
under the Indian Contract Act, 1872.
4.3 CONTRACT OF INDEMNITY
The contract of indemnity is the compensation of security against
loss of money or goods. The principles of general law of contract are equally
applicable for it as under the Indian Contract Act, 1872. Under contract of
indemnity the person who indemnifies or pays the loss is known as
‘indemnifier’ and in whose favor such promise is made to pay the loss is
known as ‘indemnified’ or ‘indemnity holder’. Under Section 124 of the
Indian Contract Act, 1872 define a contract of indemnity as ‘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 conduct of any other person’. Thus,
it is valid when-
l there is a promise
l to save another person from loss or make good the loss
l which may be caused by the conduct of the promisor himself or by
the conduct of any other person
l the promisor undertakes to make good the loss
l it covers indemnity for loss caused by human only
P contract to indemnify a sum of Rs 5000 to Q for the loss which
may be caused or any proceeding which may be carried on by R against Q.
This is a contract of indemnity.
Hence, indemnity for loss caused due to fire or in the death of a
person or expiry of stipulated period as in case in insurance do not fall under
64 Business Regulatory Framwork
, SPECIAL CONTRACT Unit 4
Sec 124 of the Indian Contract Act, 1872. It is because the life of a person
cannot be valued and the question for amount of loss suffered by the assured
does not arise.
Definition is not exhaustive
The definition of contract of indemnity given by Sec. 124 of the
Contract Act is not exhaustive. Contract of indemnity includes:
(a) only express promise to indemnify and
(b) cases where loss is caused by the conduct of the promisor himself or
by the conduct of any other person.
It does not include:
(a) implied promise to indemnify and
(b) cases where the loss is caused by accident and event not depending
on the conduct of the promisor or any other person.
Rights of the indemnity-holder when sued
The indemnity holder is entitled to the following rights:
1. Indemnity-holder is entitled to recover all damages which he might
have been compelled to pay in any suit in respect of a matter covered
by the contract.
2. Indemnity holder is entitled to recover all costs incidental to the
institution or defending of the suit. But the party indemnified cannot
recover costs when he has not acted as a prudent man in defending
the action against him or has not been authorised by the indemnifier
to defend the suit or where the costs incurred have been unreasonable
in amount.
3. Indemnity holder is entitled to recover all sums paid under any
compromise of any such suit, provided the compromise was not
contrary to the directions of the promisor and it has been made on the
best available terms. Promisee must have acted prudently in making
such a promise. (Sec. 125).
It is to be noted that a contract of indemnity being a type of the general
contract and therefore, must satisfy all essentials of a valid contract such
as competent parties, free consent, lawful object etc., otherwise it will not
be valid.
Business Regulatory Framwork 65
