undefined | unit 2 special contracts

Unit II

Contract of Indemnity and Guarantee

Q1) Explain Contract of Indemnity and its characteristics.

A1) Contracts of insurance and assurance are a kind of the universal contract.

Contract of Indemnity

According to Section 124 of the Indian Contract Act, 1872, a contract of indemnity means “a contract by which one party promises to save the other from the loss caused to him by the conduct of the promissory himself or by the conduct of any other person”.

Thus, indemnity means a compensation for the loss incurred.

The person who promises to indemnify the other is called the indemnifier and the person whose loss is to be made good or to whom such promise is made by the indemnifier is known as the indemnified or indemnity holder.

For example, X, a shareholder of a company lost his share certificate. He applied for the duplicate. The company agreed to issue the same on the term that X will compensate the company against the loss where any holder produces the original certificate. Here there is a contract of indemnity between X and the company.

Essentials of a valid Contract of Indemnity

The essential elements of a contract of indemnity are stated below-

Contract: All elements of a valid contract must also be present in the contract of indemnity.

Two parties: There are two parties in a contract of indemnity-the indemnifier who promises to make good the loss of another party, and the indemnity holder or indemnified, whose loss is promised to be made good.

Loss to one party: A person can indemnify the loss of another person when he incurs it or it becomes certain that he will incur some loss.

Indemnity by the promissory: The purpose of the contract of indemnity is to protect the indemnity holder from any loss that may be caused to him.

Acts caused by human agency: The definition of indemnity as given under section 124 of the Indian Contract Act, 1872 has restricted the scope of indemnity only to loss caused by some human act. Thus, losses caused by accidents, fire or perils of the sea are excluded from the provisions of the contract of indemnity.

Rights of Indemnity Holder

Section 125 of the Act deals with the following rights of indemnity holder when sued upon:

Right to recover damages: The indemnity holder has a right to recover all damages paid by him in any suit in respect of any matter covered by the contract of indemnity.

Right to recover costs and sums paid: the indemnity holder has the right to recover all the costs incurred in bringing or defending the suit and sums paid by him under the terms of a compromise of such suit, subject to the following conditions-

The indemnifier authorized him to bring or defend the suit or to compromise the suit, or

The indemnity holder did not contravene the orders of the indemnifier and the indemnity holder acted as it would have been prudent for him to act in the absence of any contract of indemnity.

Q2) Explain Contract of Guarantee and its characteristics.

A2) CONTRACT OF GUARANTEE

An indenture of assurance is an agreement to carry out the pledge or release the legal responsibility of third individual in case of his non-payment or nonperformance. The individual who gives the assurance is called indemnity. The individual irrespective of whose non-payment the assurance is given is called the “principal debtor” and the individual to whom the assurance is given is called the “creditor”. This contract comes under Sec 126 of Indian Contract Act.

Mode of creating guarantee: -

To create contract of guarantee

At first there must be a contract between the principle debtor and the creditor.

Secondly there must be the contract between surety and creditor.

In addition to the above contract there may be a third contract, that is principle debtor expressly or impliedly request.

The surety to act as security.

Characteristics of Guarantee: -

Concurrence: - A contract of guarantee requires to concurrence of all the three parties to it viz. the principle debtor, the creditor and the security.

Existence of debt: - A contract of guarantee can be performed only where there is an existence of debt and liability enforceable at law.

Essentials of a valid contract: - A contract of guarantee must satisfy all the essential elements of a valid contract. If principal debtor is a minor in such case security is regarded as the principal debtor who is liable to pay personally.

Writing not necessary: - A guarantee may be given either oral or written. It may be express or implied.

Consideration of contract of guarantee: - A contract of guarantee must be supported with consideration. There can be no valid contract of guarantee if consideration to tally absent but it need not to be direct consideration between surety and creditor. Sec 127 clearly provide that “Anything done for the benefit of principal debtor may be sufficient consideration to the surety for giving guarantee”.

When co-surety does not joint: - When in the contract of guarantee co-surety exists and he promise to act upon the credit only when other co-surety joins the guarantee. It is not availed unless until the co-surety does not join.

Q3) Briefly explain Contract of Bailment.

A3) Meaning of Bailment

The word ‘bailment’ is derived from the French word ‘bailer’ meaning ‘deliver’. A bailment is the delivery of commodities by an individual to another for specific purpose, on the condition that after the purpose is accomplished, the commodities have to be returned. Common examples of bailment are- hiring of commodities, furniture, or cycle etc. delivering of cloth to a tailor for making suit, delivering of car or scooter for maintenance, depositing luggage etc.

According to Section 148 of the Indian Contract Act, a bailment is the delivery of commodities by one individual to another for some purpose, upon a contract, that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them. The person delivering the goods is called the ‘Bailor’ and the one to whom they are delivered is called the ‘Bailee’. The transaction is called ‘bailment’. Bailment involves change of possession & not transfer of ownership.

Characteristics of Bailment

Contract: A bailment is formed by a contract between the bailor and the bailee. The agreement may be express or implied.

Delivery of commodities/possession: A bailment involves delivery of commodities from one person to another. Delivery includes only change in possession of the commodities and not the ownership. Delivery or possession may be actual or constructive.

For some specific purpose: The delivery of the commodities from the bailor to the bailee must be for some specific purpose. Delivery by mistake to a person is not a bailment.

Return of specific commodities: After completion of the purpose, the commodities are returned or disposed of according to the directions of the bailor. If the commodities are not to be returned, there is no bailment.

Bailment is concerned only with commodities: According to Sec. 2 (1) of the Sale of Commodities Act, 1930, commodity means every kind of moveable property other than money and actionable claims. Bailment is concerned only with commodities.

Ownership: - In bailment, bailor continues to be the owner even if the commodities are in possession of the bailee.

Classification of bailment

Gratuitous and non-gratuitous bailment

Gratuitous Bailment is a bailment which is without any reward or consideration. It is done for free, to help the bailee.

Non-gratuitous Bailment is a bailment for reward or consideration.

Q4) Briefly explain Contract of Pledge.

A4) PLEDGE

Pledge means the Bailment of commodities as a protection for the imbursement of debt or performance of a promise. In this case the bailor is called the ‘Pledger’ or ‘Pawned’ and the bailee is called the ‘Pledge’ or the ‘Pawnee” Sec 172. Contract between them is called Pawn

This is a special type of bailment where both moveable and immovable properties are pledge.

(a) Pledge by Non-owners: - The general rule is that it is the owner who ordinary can create a valid pledge. But in the following even non-owner can make a valid pledge.

(b) Pledge by mercantile representative: - Where a mercantile mediator is in possession of commodities or the credentials of the title of the commodities, any pledge made by him with the approval of the proprietor by valid because he is express by approved by the possessor of the commodities to make the sale. (Sec 178).

(c) Pledge by seller a buyer in possession after sale: - A seller left in possession of commodities after sale and a buyer who obtains possessions of commodities with the consent of the vendor before sale can make a valid pledge.

(d) Pledge by co-owner in possession: - One of the co-owners of commodities in possession may have a valid pledge of the commodities with the consent of another co-owners.

(e) Pledge by person in possession under a void able contract: - Where a person obtains possession of commodities under a void able contract, the pledge created by him is void.

RIGHTS OF PAWNEE: -

Rights of retainer: - The Pawnee may retain the commodities pledged till his sum are paid. He may retain them not only for the clearance of the dues but for

The interest due on the debt, and

All necessary expresses incurred by him in respect of the preservation of the commodities pledged (Sec 173)

2. Right of retainer for subsequent advances: - When the Pawnee borrows money to the same pawned after the time of the pledge, it is assumed that the right of retainer over the pledge of commodities extends to succeeding advance also(Sec174).

3. Rights to extra ordinary express: - The Pawnee is to receive from the extraordinary express from the pawner extra ordinary expresses incurred by him for the preservation of the commodities pledged. For such expenses he has no right to retain the commodities. He can only sue to recover those. (Sec175).

4. Right against true owner, when the pawner’s title is defective: - When the pawner obtained possession of the commodities pledged by him under avoidable contract i.e. (by fraud, undue influence, coercion) but the contract has not been rescinded at the time of the pledge, the Pawnee acquires a good title to the commodities (Sec178-A)

5. Pawnee’s right’s where pawner makes difficult: - Where the pawner fails to payment debt the Pawnee can exercise the following rights.

He may file a suit against the pawner upon the debt a promise and may retain the commodities pledged as security.

He may sell the property pledged on giving the pawner reasonable notice of the sale.

He can recover from the pawner any deficiency arising on the sell, of the commodities by him but he shall have to handover the surplus realized on the sell,of the commodities pledged, to the Pawnee.

RIGHTS OF PAWNER: -

Right to get back commodities: - The pawner is entitled to get back the commodities pledged on the repayment of the loan and interest.

Rights to redeem the debt: - The pawner has a right to redeem the debt at any time for which the pledge is made (Sec177).

Preservation and maintenance of the commodities: - The Pawner has a right to sue that the Pawnee preserve the commodities pledged and property maintenance them or not.

3. Right of an ordinary debtor: - The pawner has the right of ordinary debtor which are conformed on him by various status meant for his protection of debtors.

Q5) Explain the definition of Agent.

A5) DEFINITION OF AGENT AND PRINCIPAL

A person who has capacity to contract may enter into a contract with another either by himself or through another person when he adopts the later course, he is said to be acting through an “Agent”. An agent is an individual engaged to stand for another in communication with third person. The individual for whom such act is done is called the “Principal”.

Classification of agents

Classification according to extent of authority:

Specific agent: A special agent is one who is appointed to perform a particular act or to represent his principal in some particular transaction. For example, an Auctioneer.

General agent: A general agent is one who has authority to do all acts conducted with a particular trade, business or employment. For example, the manager of a firm.

Universal agent: - A universal agent is one whose authority is unlimited. He has authority to do all acts which the principal can lawfully do and can delegate.

Q6) What is the difference between Agent and Servant?

A6) An agent is employed on behalf of the principal and he can bring legal relations with third party. But the servant does not create any legal relations between the employer and the third persons.

A principal has a right to direct agent for a particular work. But master of a servant has a right to direct and say how to do the work

A principal is liable for the wrongs of his agent done within the scope of his authority. A master is liable for the wrongs of the servant which are done during the employment.

An agent is paid commission whereas servants are paid salary.

An agent may work for several principal the same time, but servant usually services only one master.

Q7) Explain creation and termination of Agency.

A7) Creation of Agency: -

An agency may be created indifferent ways. It need not to be created expressly. It is created from circumstances and conduct of the parties.

Agency by express bond: - A contract might be created by an express bond. He is appointed by the principal through written or oral agreement Sec (187). The usually from a written contract of agency is the power of attorney (a formal instrument by which One person employs another to represent him or act in his stead, for certain purposes) on a stamped paper.

Agency by implied bond: - Implied agency comes from the accomplishment, conditions or bond of parties. Implied agency may be of following types:-

(a) Agency by estoppels: - In many cases an agency may be implied from the conduct of the party, through no express authority has been given. Where the principal knowingly permits a person to act in a certain business his name of on his behalf. Such principal is stopped from denying the authority of the agent.

(b) Agency by holding out: - Where a person permits another person to act on his behalf. Such person is known as agent by holding out.

(c) Agency by necessity: - Sometimes extraordinary circumstances require a person who is not ready should act as an agent of another. There may not be any express or implied authority to act on behalf.

3. Agency by Rectification: - Rectification means subsequent adoption and acceptance of an act originally done without instruction or authority.

4. Agency by operation law: - Sometimes an agency arises by operation of law. Ex: - partners of firm, promoters of a company.

TERMINATION OF AGENCY

(Sec 201) The various modes of termination of agency are as follows:-

Termination of the agency by an act of the parties:-

(a) Agreement: - The relation of principal and agent is like any other agreement may be terminated at any time and at any state by the mutual agreement between the principal and agent.

(b) Revocation by the principal: - A principal has an authority to terminate the agency act any time before the agent has exercise his authority so as to bind the principal unless, the agency is irrevocable.

(c) Revocation by the agent: - An agency may also be terminated by the agent after giving a reasonable notice to the principal.

Termination of organization by function of law:-

Performance of the contract: - The most obvious mode of terminating the agency is to do what the agent has undertaken to do. An agency is terminated when the object of the appointment of agent is accomplished.

Death and insanity: - When the agent or the principal dies or becomes of unsound minded the agency is terminated.

Destruction of subject matter: - An agency which is created to deal with a certain subject matter comes to an end by the destruction of the subject matter.

Principal becoming an alien enemy: - When the agent and the principal are aliens, the contract of agency is void so long as the countries of the principal and the agent are at peace. If war breaks out between the two countries, two contracts of agency is terminated.

2. Termination of sub-agents’ authority: - The termination of an agent’s authority puts an end to the sub-agent’s authority.

3. Dissolution of a company: - When a company whether the principal or agent is dissolved, the contract of agency with or by the company, automatically comes to an end.

4. Termination by subsequent impossibility: - When the implication of an agency becomes unlawful due to subsequent change of law. The agency automatically terminated.

Q8) What is Consumer Protection? What are its objectives?

A8) A consumer is the one who assumes to be treated like a King as they bring business to the seller. Previously “consumer was requested to beware” but these days fingers have been pointed to seller “let seller be beware” as due to policies introduced, authorities’ laws, consumer protection, NGO and the increased competition in the market.

Consumer Protection is a term given to an exercise wherein we need to protect the consumer from the unfair practice, teaching them about their rights and responsibilities and also redressing their grievances.

In today’s world, the protection of the consumer is regarded to be of utmost importance. All around the world, mechanisms have been pondered upon in order to uphold the satisfaction of the consumer.

The main objectives of the Consumer Protection Act are:

(a) Providing better and all-round protection to consumer.

(b) Providing machinery for the speedy redressal of the grievances.

(d) Providing rights to consumers.

(e) Safeguarding rights of Consumers.

Other objectives can be:

To ensure fair, competitive and responsible markets that work well for consumers and promote ethical business practices.

To promote and protect economic interest of consumers.

To improve access to information that consumers require, to make knowledgeable choices according to their individual needs.

To protect buyer from hazards.

Q9) What are the reasons behind Consumer Protection Act?

A9) The enactment of Consumer Protection Act succeeded in bringing pressure on business firms as well as government to correct business conduct which may additionally be unfair and against the interests of consumers at large. The enactment of COPRA has led to the setting up of separate departments of Consumer Affairs in central and state governments to spread information about legal process which people can use. This information is spread through posters and advertisements on tv channels.

The Consumers were the worst affected out of a trade cycle procedure as they could be effortlessly duped by the sellers or producers of products. Before the enactment of this act the consumers were easy targets as victims of the producers in the following ways-

1. Non-awareness regarding the market price of a particular product: A consumer who's no longer used to the duping techniques of sellers could be easily fooled by means of some clever sellers making easy money through demanding higher price for the same exact being sold at a much cheaper rate somewhere else. The price of a commodity in a perfectly competitive market is bound to be the same everywhere, sellers demanding higher fees will lose customers. But people who are not aware of the prevailing market price of the commodity they want to buy might be fooled.

2. Quality of the product- The quality of the good is a very important fact affecting the price of the commodity. If the quality is not equivalent to the price asked for the good, then the buyer's interests will be toyed with towards which the government should be considerate towards.

3. Adulteration of goods: To protect the consumer's rights from being hampered severely stringent steps must be taken in order to protect the goods from being tampered with through adulteration. Adulteration might have an effect on health due to the harmful substances mixed to get the desired apparent appearance.

4. Forum for the redressal of the grievances of the consumers: The act also helped in establishing a permanent forum where the aggrieved consumers could lodge cases against sellers and goods sold.

Q10) Who is not a “Consumer”? What are “Goods” and “Services” according to Consumer Protection Act?

A10) A person is not a consumer if he -

1. Buys any goods without a consideration. Any user of such goods when such use is made without the approval of person who buys goods for consideration.

2. Hires or avails of any services without a consideration. Any beneficiary of such services for consideration when such services are availed of, without the approval of the person who hires such services for consideration.

3. Obtains the goods for resale or commercial purpose.

4. Obtains the service under a contract of personal service.

Meaning of Goods

"Goods" means goods as defined in the Sale of Goods Act, 1930. The meaning of the word "goods" under the Consumer Protection Act is the same as defined under the Sale of Goods Act, 1930. Goods mean every kind of movable property other than actionable claims and money. It includes stock and shares, growing crops, grass and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale.

Meaning of Services

"Service" means service of any description which is made available to potential users and includes, but not limited to, the provisions of facilities In connection with banking, financing insurance, transport, processing supply of electricity or other energy, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.

Q11) What do you mean by Consumer Disputes? Define “Complainant”.

A11)"Consumer dispute" means a dispute with the person against whom a complaint has been made, denies or disputes the allegation contained in the complaint.

In order to get a remedy on the Consumer Protection Act a person by himself has no locus standi under the Consumer Protection Act. A person has to be a consumer as per the definition of consumer given under the Act. There has to be a dispute between the consumer and the trader, many tax or service provider against whom he has a complaint and he seeks his relief provided under the Consumer Protection Act.

According to Section2 (1) (b) complainant means

a consumer; or

Any voluntary consumer association registered under the Companies Act or under any other law for the time being in force; or

The Central Government or any State Government, who or which makes a complaint

One or more consumers, where there are numerous consumers having the same interest.

Q12) Discuss Central Consumer Protection Council.

A12) The Central Consumer Protection Council

(1) The Central Government may, by notification, establish with effect from such date as it may specify in such notification, a council to be known as the Central Consumer Protection Council (hereinafter referred to as the Central Council).

(2) The Central Council shall consist of the following members, namely, -

(a) The Minister in charge of 1[consumer affairs] in the Central Government, who shall be its Chairman, and

(b) Such number of other official or non-official members representing such interests as may be prescribed.

Procedure for meetings of the Central Council

(1) The Central Council shall meet as and when necessary, but 1[at least one meeting] of the council shall be held every year.

(2) The Central Council shall meet at such time and place as the Chairman may think fit and shall observe such procedure in regard to the transaction of its business as may be prescribed.

Objects of the Central Council The objects of the Central Council shall be to promote and protect the rights of the consumers such as-

(a) The right to be protected against the marketing of goods 2[and services] which are hazardous to life and property;

(b) The right to be informed about the quality, quantity, potency, purity, standard and price of goods 1[or services, as the case may be], so as to protect the consumer against unfair trade practices;

(d) The right to be heard and to be assured that consumers' interests will receive due consideration at appropriate forums;

(e) The right to seek redressal against unfair trade practices 1[or restrictive trade practices] or unscrupulous exploitation of consumers; and

(f) The right to consumer education.

Q13) Discuss State Consumer Protection Councils.

A13)-(1) The State Government may, by notification, establish with effect from such date as it may specify in such notification, a council to be known as the Consumer Protection Council (hereinafter referred to as the State Council).

(2) The State Council shall consist of the following members, namely, -

(a) The Minister in-charge of consumer affairs in the State Government who shall be its Chairman;

(b) Such number of other official or non-official members representing such interests as may be prescribed by the State Government.

(3) The State Council shall meet as and when necessary but not less than two meetings shall be held every year.

(4) The State Council shall meet at such time and place as the Chairman may think fit and shall observe such procedure in regard to the transaction of its business as may be prescribed by the State Government.

Objects of the State Council

The objects of every State Council shall be to promote and protect within the State the rights of the consumers laid down in clauses (a) to (f) of section 6.

Q14) Discuss District Protection Council.

A14) The State Government shall establish for every district a district consumer protection council. It shall consist of the following members namely:

(a) The collector of the district, who shall be its chairman, and

(b) Search number of other official and non-official members representing such interest as may be prescribed by the State Government.

The District Council shall meet as and when necessary but not less than two meetings shall be held every year. the District Council shall meet at such time and place within the district as the chairman may think fit and shall observe search procedure in regard to the transaction of its business as may be prescribed by the State Government.

Q15) Explain the Three Tier Consumer Grievances Machinery under the Consumer Protection Act.

A15) Three Tier Consumer Grievances Machinery under the Consumer Protection Act!

1. District Forum:

District forum consists of a president and two other members. The president can be a retired or working judge of District Court. They are appointed by using state government. The complaints for goods or services worth Rs 20 lakhs or less can be filed in this agency. The agency sends the goods for testing in laboratory if required and gives decisions on the basis of facts and laboratory report. If the aggrieved party is not cosy by the jurisdiction of the district forum then they can file an appeal against the judgment in State Commission inside 30 days by depositing Rs 25000 or 50% of the penalty amount whichever is less.

2. State Commission:

It consists of a president and two other members. The president must be a retired or working decide of high court. They all are appointed by state government. The complaints for the goods really worth more than Rs 20 lakhs and less than Rs 1 crore can be filed in State Commission on receiving complaint the State commission contacts the party against whom the complaint is filed and sends the goods for testing in laboratory if required. In case the aggrieved party is not satisfied with the judgment then they can file an appeal in National Commission within 30 days by depositing Rs 3500 or 50% of penalty amount whichever is less.

3. National Commission:

The national commission consists of a president and four members one of whom shall be a woman. They are appointed by Central Government. The complaint can be filed in National Commission if the value of goods exceeds Rs 1 crore.

If aggrieved party is not satisfied with the judgment then they can file a grievancein Supreme Court within 30 days.

Basis	District Commission	State Commission	National Commission
Composition	It consists of a president and two other members.	It consists of a president and two other members.	It consists of a president and four other members.
Who can be a President	A working or retired judge of District Court.	A working or retired judge of High Court.	A working or retired judge of Supreme Court.
Appointment of President	The president is appointed by the state government on the recommendation of the selection committee.	The president is appointed by the state government after consultation with the chief justice of the High Court.	The president is appointed by the central government after consultation with the chief justice of India,
Jurisdiction	In 1986, it had jurisdiction to entertain complaints where the value of goods or services does not exceed Rs 5, 00,000 but now the limit is raised to 20 lakhs.	In 1986, it had jurisdiction to entertain complaints when the value of goods or services exceeds Rs 5,00,000 and does not exceed Rs 20,00,000 but now it is raised to more than Rs 20,00,000 and up to Rs1 crore.	In 1986, it had jurisdiction to entertain complaints where the value of goods or services exceeds Rs 20 lakhs but now the limit is raised and it entertains the complaints of goods or services where the value exceeds Rs 1 crore.
Appeal against orders	Any person who is aggrieved by the order of District Forum can appeal against such order to State Commission within 30 days and by depositing Rs 25000 or 50% of the penalty amount whichever is less.	Any person who is aggrieved by the order of State Commission can appeal against such order to National Commission within 30 days and by depositing Rs 35000 or 50% of penalty amount whichever is less.	Any person who is aggrieved by the order of the National Commission can appeal against such order to Supreme Court within 30 days and by depositing 50% of penalty amount but only cases where value of goods or services exceeds Rs 1 crore can file appeal in Supreme Court.

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