UNIT – 3

SPECIAL CONTRACTS

Q1. What are the essential elements of indemnity contract?

A 1)

Q2.Which are the essential elements of a contract of guarantee?

A 2)

1. Concurrence of All the Parties

All the three parties namely, the principal debtor, the creditor and therefore the surety must conform to make such a contract.

2. Liability

In a contract of guarantee, liability of the surety is secondary i.e., the creditor must first proceed against the debtor and if the latter doesn't perform his promise, then only he can proceed against the surety.

3. Existence of a Debt

A contract of guarantee pre-supposes the existence of a liability, which is enforceable at law. If no such liability exists, there are often no contract of guarantee. Thus, where the debt, which is sought to be guaranteed is already time barred or void, the surety isn't liable.

4. Consideration

There must be consideration between the creditor and the surety so on make the contract enforceable. The consideration must even be lawful. During a contract of guarantee, the consideration received by the principal debtor is taken to be the sufficient consideration for the surety.

Anything done, or any promise made, for the advantage of the principal debtor is also sufficient consideration to the surety for giving the guarantee – Sec. 127 of Indian Contract Act, 1872..

Thus, any benefit received by the debtor is adequate consideration to bind the surety. But past consideration is not any consideration for a contract of guarantee. There must be a fresh consideration moving from the creditor.

5. Writing not Necessary

A contract of guarantee may either be oral or written. It's going to be express or implied from the conduct of parties.

Note: A Contract of Guarantee should be in writing under English Law.

6. Essentials of a valid Contract

It must have all the essentials of a valid contract like offer and acceptance, intention to make a legal relationship, capacity to contract, genuine and free consent, lawful object, lawful consideration, certainty and possibility of performance and legal formalities.

7. No Concealment of Facts

The creditor should confide in the surety the facts that are likely to affect the surety’s liability. The guarantee obtained by the concealment of such facts is invalid. Thus, the guarantee is invalid if the creditor obtains it by the concealment of material facts.

8. No Misrepresentation

The guarantee shouldn't be obtained by misrepresenting the facts to the surety. Though the contract of guarantee isn't a contract i.e., of absolute good faith, and thus, doesn't require complete disclosure of all the material facts by the principal debtor or creditor to the surety before he enters into a contract. But the facts, that are likely to affect the extent of surety’s responsibility, must be truly represented

Q 3) Mention the types of contract of guarantee.

A 3)

Q4) Explain difference between contract of indemnity and contract of guarantee

Explain the concept of Surety.

A 4)

SURETY’S LIABILITY AS PER SECTION 128

The liability of the surety is co-extensive with that of the principal debtor, unless it's otherwise provided by the contract.

The liability of the surety is co-extensive with that of the principal debtor, unless it's otherwise provided by the contract."

Example: A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not just for the quantity of the bill, but also for any interest and charges which can became due thereon .

CONTINUING GUARANTEE AS PER SECTION 129

A guarantee which extends to a series of transactions is named a ‘continuing guarantee’.

Example:

(a) A, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be responsible, to the quantity of 5,000 rupees, for the due collection and payment by C of these rents. This is often a unbroken guarantee.

RIGHTS OF SURETY

 Against the principal debtor

Against the creditor

Q5)Which are the e-modes of discharge of surety?

A 5)

Q6) Explain the law of bailment with essentials and types.

A 6) According to Sec 148 of the Contract Act, 1872, ‘A bailment is the delivery of goods by one person 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 directions of the person delivering them.

The person delivering the goods is called the bailor, the person to whom they are delivered is called the bailee and the transaction is called the bailment.

ESSENTIALS OF BAILMENT

It is a delivery of movable goods by one person to another (not being his servant). According to Section 149 the delivery of goods may be actual or constructive.

The goods are delivered for some purpose. When they are delivered without any purpose there is no bailment as defined under Sec 148

The goods are delivered subject to the condition that when the purpose is accomplished the goods are to be returned in specie or disposed of according to the directions of the bailor, either in original form or in altered form.

 KINDS OF BAILMENT

There are five sorts of Bailment are as under

1) Gratuitous Bailment

 A Bailment made with none Consideration for the benefit of the bailor or for the benefit of the bailee is named Gratuitous Bailment. In simple words A bailment with no consideration is Gratuitous bailment.

2) Non-Gratuitous Bailment:

 Non Gratuitous may be a bailment for reward. It's for the advantage of both the bailor and bailee.

3) Bailment for the benefit of the Bailor during this case the bailor delivers his goods to a bailee for a secure custody with none benefit/ reward. It's called " the bailment for the advantage of the bailor".

4) Bailment for the exclusive advantage of the Bailee

In this case Bailor delivers his goods to a bailee with none benefit for his use, it's called "the bailment for the exclusive benefit of the bailee"

5) Bailment for the benefit of the Bailor and Bailee

In this case goods are delivered for consideration, both the bailor and bailee get benefit and hence it's called the bailment for the advantage of the bailor and bailee

Q 7) Make a note on the duties of bailor and bailee.

A 7)

DUTIES OF THE BAILEE

DUTIES OF THE BAILOR

Q 8) Explain the difference pledge and bailment.

A 8)

Q9) Make a note on the rights of pawnor and pawnee

A 9)

RIGHT OF PAWNOR

RIGHT OF PAWNEE

Q 10) What are the rights and duties of principal and agent?

A 10)