special contracts ppt

8/17/2019 Special Contracts PPT

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Specific Contracts

Prepared By:

Nirav Vyas Assistant Professor

JVIMS-Jamnagar


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Topics to be covered

Indemnity

Guarantee

Pledge

Bailment

Agency


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Indemnity

efinition:

!A "ontract #y $%ic% one party promises to

save ot%er from loss caused to %im& #y t%e

conduct of t%e promisor %imself or #y conductof ot%er person& is called a contract of

indemnity' Sec ()*+,


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Example

If A and B are rivals and t%ey claim goods$%ic% ust arrived from a cargo via a train. Aenters into a contract $it% t%e cargo manager

and says to deliver t%e goods to %im and if inturn B sues t%e cargo manager for t%e goods& A $ill pay for it.

If A and B goes to s%op $%ere #y A enters intoa contract $it% s%op /eeper t%at %e $ill payfor t%e goods purc%ased #y B& it is calledindemnity


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0$o Parties to t%e contract

Indemnifier- 0%e person promising to ma/e

good t%e losses is called Indemnifier

Indemnified- 0%e person to $%om suc%

promise is made is called Indemnified


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12press Indemnity

Implied Indemnity


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Rights of Indemnified when sued (Sec

12!

All t%e damages $%ic% may #e compelled to

pay in any suit in respect of any matter

All costs t%at %e may incur in defending t%esuit

"ompromising costs


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"uarantee

efinition:-

A contract of guarantee is a contract to

perform t%e promise or disc%arge t%e lia#ility

of a t%ird person in case of %is default (Sec)*3,


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Example#

If A purc%ases goods from B and as/s for

credit of )4 days& B in turn says t%at if A

guarantees t%at if payment is not made after

)4 days t%en %e $ill pay. A enters into t%atcontract t%en t%is contract is called a

guarantee.


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$arties to a guarantee

0%ere %as to #e 5 parties to guarantee

Principal e#tor

"reditor

Surety


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Essential Elements of guarantee

"oncurrence

0%ere must #e concurrence of all t%ree parties

1ssential elements of valid contract

"apacity of parties

"onsideration( for details refer to ne2t slide,

Primary lia#ility in some person

6riting is not necessary


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%onsideration in guarantee

It is necessary t%at t%ere %as to #e a

consideration #et$een t%e principal de#tor

and t%e creditor #ut it need not #e $it% t%e

surety


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&ifference between Indemnity and

"uarantee

Indemnity 0%ere are * parties to

t%e contract i.eIndemnifier and

Indemnified 0%e lia#ility of

indemnifier is primaryand independent

0%ere is only ) contract

An indemnifier cannotsue a t%ird party for t%elosses paid

Guarantee 0%ere are 5 parties i.e

Principal de#tor& creditorand surety

0%e lia#ility of surety iscollateral to t%eperformance or nonperformance of principal

de#tor 0%ere are 5 contracts

0%e surety can sue t%eprincipal de#tor


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Bailment

Meaning and Definition

Requisites of bailment

Classification of bailment

Rights and Duties of Bailor

Rights and Duties of Bailee

Lien

Bailment and Pledge


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Meaning and Definition

The word ‘Bailment’ is derived from a Frenchword ‘Ballier’ which means ‘to deliver’

Definition: Acc to Sec 148 “Bailment means delivery ofgoods by one person to another for somepurpose, upon a contract, that they shall, whenthe purpose is accomplished, be returned ordisposed of according to the direction of theperson delivering them.

Bailment and Pledge


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There are basically two parties to Bailment

Bailor- The person delivering the goods

Bailee- The person receiving the goods

However there can be three parties to Bailmentalso

Bailor

BaileeSub-bailee

Bailment and Pledge


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Example

Mr A %as a general insurance of %is car& once

t%e car met $it% an accident so Mr A gave

t%at car to t%e Insurance company for repairs

7ere. A is #ailor and Insurance company is#ailee..

7o$ever& t%e insurance co. gave t%e car to

Mr " $%o is a mec%anic to repair t%e car.

7ere Mr " is a su# #ailee.

Bailment and Pledge


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Bailment can be express bailment or implied bailment

Example of Implied Bailment:

A Lady Mrs A reported for a theft of her jewellery topolice. Police found the jewellery and kept them intotheir custody. However, the Jewellery disappearedfrom the custody. Here, the Police had to pay for theloss of jewellery as it was Implied that the Police were bailee and the lady was bailor.

Bailment and Pledge


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Requisites or Essential features of bailment

"ontract

elivery of possession

A mere custody of goods cannot #e termed as

#ailment 8or some purpose

isposal or return of t%e goods

Bailment and Pledge


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Classification of Bailment

8or e2clusive #enefits of #ailor

8or e2clusive #enefits of #ailee

8or Mutual Benefits

Gratuitous Bailment

Non-gratuitous Bailment

Bailment and Pledge


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Duties of Bailor

To disclose the known faults (sec 150)

To bear extraordinary charges

To indemnify the bailee for the loss caused in

case of permanent termination of gratuitous bailment

To receive back the goods

To Indemnify the bailee

Bailment and Pledge


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Duties of Bailee

To take reasonable care of the goods Sec 151& 152

Not to make unauthorized use of the goods

Sec 154Not to set up an adverse title

To return any accretion to the goods

To return the goods

Bailment and Pledge


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Duties of Bailee

Not to mix goods bailed with his own goodsIf he mixes with the consent of the bailor, then both the parties should have mutual interest in

such mixtureIf he mixes without the consent of bailor andthe goods can be separated, then he must bearall the expenses of such separation

If he mixes without the consent of bailor andthe goods cannot be separated, then he isliable for the loss of the goods

Bailment and Pledge


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Rights of the Bailor

Avoidance of the contract Sec 153

Return of goods lent gratuitously Sec 159

Compensation from a wrong doer Sec 180

Bailment and Pledge


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Rights of Bailee

Delivery of goods to one of several joint bailors

Right to apply to court to stop delivery

Right to action against trespassersRight to Lien

Bailment and Pledge


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Lien

Lien means right of a person to retain thepossession of some goods belonging toanother until some debt or claim of theperson in possession is satisfiedParticular LienGeneral Lien

Bailment and Pledge


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Particular Lien

Acc sec 170; Where the bailee has inaccordance with bailment, rendered anyservice involving the exercise of labor and

skill, he has in absence of any contract tocontrary, a right to retain goods until hereceives due remuneration for those services.

Bailment and Pledge


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General Lien

A general lien is a right to retain all the goodsor any property of another until all the claimsof the holder are satisfied

Bailment and Pledge


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Rights and duties of a finder of goods

Right of Lien

Right to sue for reward

Right of sale

Bailment and Pledge


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Duties of finder of goods

He must take reasonable care of the goods

He must not use the goods for his ownpurpose

He must not mix the goods with his owngoods

He must try to find out the owner of the

goods

Bailment and Pledge


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Termination of Bailment

On the expiry of the time period

On the achievement of the object

Destruction of the subject matter

Gratuitous bailment can be terminated anytime by the bailorHowever the bailor is liable to pay the loss

caused to bailee for a pre mature terminationInconsistent use of the goods

Bailment and Pledge


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Pledge

The bailment of goods as security forpayment of a debt or performance or apromise is called pledge

Example: A takes Rs 1000/- from B and gives his watchas a security then this contract is calledpledge. The reason being that the watch is

bailed as a security for the amount owed by Ato B

Bailment and Pledge


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Rights of Pledgee

Right to exercise particular lien

Right to exercise particular lien forsubsequent advances

Right to recover extra ordinary expenses’Right against a true owner

Right to sue the pledger

Right to sale the goods

Bailment and Pledge


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Rights of a pledger

Right to get back the goods

Right to check that the goods are preserved

Bailment and Pledge


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Practical Problems

'r lends his car to 'r ) for attending a

conference from *amnagar to +bad, The bra-es of

car are not wor-ing properly and it is -nown to 'r

, .owever/ he does not let ) -now this fact, 'r )instead of going to the conference ta-es the car

from *amnagar to 'ount bu for a holiday and

meets with an accident, 0ater/ on 'r ) claims

compensation on the basis that the -nown fault wasnot disclosed by 'r , %an he succeed the case9

Bailment and Pledge


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Practical Problems

Mr A& a $are%ouse o$ner $as entrusted $it%

certain goods #elonging to Mr B for safe custody.

A ta/es reasona#le precautions #y %aving a safe

#uilding& strong loc/s and appoints a competent

$atc%man. 7o$ever& t%e goods $ere stolen due

to t%e negligence of t%e $atc%man $%o pro#a#ly

did not loc/ or $atc% properly. ater on Mr A

denies to pay t%e cost of t%e goods on t%e #asis

t%at %e %ad ta/en reasona#le care of t%e goods.

"an %e succeed9

Bailment and Pledge


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True or alse

Bailee must #ear all e2penses of t%e goods

#ailed to %im

A gratuitous #ailment can #e terminated #y t%e#ailor even #efore t%e stated time

As per t%e Indian a$ t%e contract of

guarantee must #e in $riting

8or a contract of guarantee& t%e primary lia#ility

is of suretyBailment and Pledge


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Agency

Definition: Agent- Sec 182- “Agent is a person employed to doany act for another or to represent another indealings with third person”

Agency- “ The relationship, based upon anagreement, where by one person acts for another intransaction with a third party is called agency”

Agency


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No consideration is required to createagency- Sec 185

Whenever principal gives his consent to someone to be his agent, that consent his enough considerationfor the principal to create an agency. However, anagent should get some consideration from the

principal. If he does not get any consideration, still hestarts acting as an agent for a certain work then hemust complete the work.

Agency


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Who can appoint an agent

Any party who is capable of contracting If an agent is working for a principal who is incompetent tocontracting then he is personally liable for the actions arisingout of that contract

Group of individuals Partners

Incorporated bodies Companies

Trade Unions etc.

Agency


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Who can be an agent

Any person of a sound mind and major by age can bean agent

Agency


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Different kinds of agency

Express agency

Implied Agency Agency by Estoppel

Agency by holding out Agency of necessity

Agency by Ratification

Agency coupled with interest

Agency


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Agency by Estoppel- Sec 187 When a person has, by his conduct induced others to believe that a certain person is his agent, then he isestopped from subsequently denying it.

Example:Mr A has a shop in Rajkot and Jamnagar. He stays in Jamnagar so he asks a friend, Mr B,to do him a favour and tomanage the shop at Rajkot for a certain period. Mr B in turnmanages the shop and places orders behalf of Mr A. Then

here, all the actions of Mr B will have to be abide by Mr A onthe basis of Implied Agency of Estoppel

Agency


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Agency by Holding out: Through the law of agency by estoppel, if a principal doessome affirmative action making a person to be believed asan agent then he has to hold out for all the actions of the

agent Example:

Mr A is a shopkeeper, he purchases stock from an another part ofcity. He asks regularly to his friend to place an order because hecould not travel that part of the city. Generally he places order on

credit of 15 days. Once he gives cash to his friend to place the orderon cash but the friend places the order on credit and pockets themoney. Here by holding out action, Mr A is liable by the action of hisImplied agent, that is his friend>

Agency


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Agency of Necessity: If any person out of necessity both for him and theproposed principal acts an agent for the principal thensuch agency is called agency of necessity

Example:

A horse is sent by rail at the destination is not taken thedelivery by the owner. The station master has to feedthe horse. He has become the agent by necessity and

hence the owner must compensate him.

Agency


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Agency of by ratification Where an agent does an act for his principal butwithout the knowledge of his authority. The principalis not bound by his action to the third party and also

the third party is not bound to perform the contract However, the principal, if desires, can ratify the act ofan agent

In this case the agency is deemed to be created fromthe moment the agent first acted and not from the date

of principal’s ratification.

Agency


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Agency of by ratification Example:

Mr Antony who is a share broker enters in to anagreement with Mr Jefferson, the member of the BOD ofa company to convert the debentures held by him into

fully paid equity shares. Mr Jefferson actually has noauthority given to him by the company to enter into suchagreement. However the co. found this offer attractiveand ratified the actions of Mr. Jefferson. After some timeMr Antony denied of performing the contract saying thatMr Jefferson did not have any right to enter in theagreement as he was not given any agency.

Here, Mr Antony cannot escape from his liabilities as theagency is created through ratification

Agency


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Agency coupled with interest Where the agent has himself an interest in the subjectmatter of the agency apart from the regularremuneration, then such kind of agency is called

Agency coupled with interest. Example: Ms. Cynthia borrows Rs 10000 from Mrs Parker. WhenMrs. Parker asks for her money back she tells her that

she is not in a position to pay the money, instead shegives her cell phone to Mrs Parker and asks her to sellit for her and clear debts of herself.

Agency


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&uties of an gent

To conduct the business of agency according to theprincipal’s direction (Sec 211)

The agent should conduct the business with such skillsand diligence as required (Sec 212)

To render proper accounts (Sec 213) To communicate with agent in case of difficulty (Sec 214) Not to make any secret profits Not to deal on his own account Not entitled to remuneration for misconduct Not to disclose any confidential information To take reasonable steps for protection of the interest incase of death of principal


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Rights of gent

;ig%t to remuneration (Sec *)


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$rincipal+s &uties towards gent

Bound to indemnify t%e agent

Bound to compensate %is agent in respect of

inury due to %is neglect

0i bilit f $ i i l t Thi d


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0iability of $rincipal to Third

$arties Any act done #y agent to$ards t%e t%ird party #inds t%e

principal

6%ere t%e agent e2ceeds %is aut%ority t%en t%e part $%ic%

$as falling under %is aut%ority can only #ind t%e principal

lia#le 0%e principal is lia#le even for misrepresentation and

frauds committed #y agent. 7o$ever if t%e agent commits

it e2ceeding %is aut%ority t%en t%e principal is not lia#le

0%e principal remains lia#le to t%e t%ird parties even $%ere

%is name $as not disclosed.

7e is #ound #y any notice given to t%e agent $it%in t%e

course of t%e #usiness


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inds of gents

0%ere are mainly t%ree classification of Agents

Special and General Agents

Mercantile or commercial Agents

Non mercantile or non commercial Agents Special and General Agents

Any person entitled to $or/ as an agent for

someone only for some particular act t%en %e>s%e is

called a special agent. ?n t%e ot%er %and t%e person$%o is appointed to represent t%e principal in all

matters concerning a particular #usiness is called a

general Agent.


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inds of gents

Mercantile or "ommercial Agents

Mercantile agents are of follo$ing types Bro/er

8actor

"ommission Agent

el credere

Auctioneer

Pa//a and @atc%a Adatias


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inds of gents

Non mercantile or Non commercial Agents

;efer #y yourself page num#er )+


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Termination of gency(Sec 231!

?n revocation #y t%e principal

If t%e agency is for a single $or/& t%en it may #e

revo/ed any time #efore t%e commencement of

$or/

If t%e agency is a continuous agency& t%en a notice

of revocation is essential to t%e agent as $ell as

t%e t%ird party

7o$ever if no sufficient cause is produced for

revocation t%en compensation must #e paid to t%eagent


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Termination of gency(Sec 231!

?n t%e e2piry of fi2ed time period

?n t%e performance of any specific o#ective

Insanity or deat% of principal or agent

estruction of su#ect matter

Insolvency of t%e principal


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ou $ill %ave to prepare t%e follo$ing

0ypes of Agent

Agency #y ;atification

Agency coupled $it% interestPo$er of Attorney

ou $ill %ave to give a speec% on t%at

0%e candidate $ill #e c%osen #y me on t%e spot

0%is activity $ill #e done on *=t%

Anyone not coming on t%at day $ill not #e allo$ed to sit

in t%e internal e2am

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