CONTRACT-II : 8/27/2008 CONTRACT-II 1.Scope of contract-II
(e) Agency and
(g)Conveyancing exercises Slide 2: 8/27/2008 Reading material : 8/27/2008 Reading material 1.Indian Contract Act
2.Indian Partnership Act
Law of contract Act.Avatar Singh
Indian Partnership Act.Avatar Singh
4.Theory of Knowledge. B.Russell
5.Origin of private property, family and state.F.Angel Functions of special contracts. : 8/27/2008 Functions of special contracts. 1.Indemnity.
6.Partnership Contract of Indemnity(Sections 124,125) : 8/27/2008 Contract of Indemnity(Sections 124,125) S.124. Contract of Indemnity:
A contract by which one party promises to save the other
From loss caused to him by the conduct of promisor himself or
By the conduct of any other person, called a “contract of indemnity”
Note: Section 124 deals with only conduct-loss indemnity but not event loss or accident loss etc. hence law indemnity contract is not exhaustive u/s124 Essential elements of contract of Indemnity : 8/27/2008 Essential elements of contract of Indemnity Competent parties.
Valid offer and acceptance
Consent, free consent
Valid consideration, Ss 2(d),23,25 read with 127.
Purpose “to save the promisee from loss which result from the conduct of promisor or any other person(S.124)” Parties to the contract of Indemnity : 8/27/2008 Parties to the contract of Indemnity Two parties to the contract of Indemnity. Promisee:
Indemnity-holder Purpose :to save from
Conduct loss due to
or third person Promisor:
Indemnifier Function: Generally used
in service contracts,
insurance contracts Loss doing conduct : 8/27/2008 Loss doing conduct 1.Loss doing conduct may be
(a) Promisor or
(b) Any other person
2.Loss may be caused to
(a) Promisee or
(b) Any other person Rights of Indemnity-holder when sued:S.125 : 8/27/2008 Rights of Indemnity-holder when sued:S.125 Acting with in the scope of the contract the promisee is entitled to:
1.All damages holder is compelled to pay in a suit.
2.All costs which holder may be compelled to pay in bringing and defending a suit.
3.All sums which holder may have paid under the terms of any authorised or prudent compromise in the suit. Commencement of liability of indemnifier : 8/27/2008 Commencement of liability of indemnifier 1.Indian law: India follows the English equity law.Chagla J in Gajanan’s case (AIR 1942 Bom.302
2.English common law
(a) Common law: “You must be damnified before you can claim to be indemnified”
(b) Equity law Some cases as reference point of discussion : 8/27/2008 Some cases as reference point of discussion Gajanan Moreshwar V. Moreshwar Madan AIR 1942 Bom.302
Transformation in law from “you must be damnified before you can claim to be indemnified” to “deposit sufficient funds in the court to meet the liability or pay off the claim to the indemnity holder the moment liability becomes absolute final.” Some cases for discussion : 8/27/2008 Some cases for discussion 1.Rechardson Re,Ex parte The Governors of St.Thomas Hospital (1911)2 KB 705.
“Indemnity is not necessarily given as repayment after payment”
2.Gajanan Moreshwar V.Moreshwar Madan AIR 1942Bom.302 Chhagla J
Calcutta followed Bombay in AIR 1964 Cal.159. Contract of guarantee(Ss.126 to 147) : 8/27/2008 Contract of guarantee(Ss.126 to 147) Surety Creditor PD Three-party contract
3.Principal debtor Utility of contract guarantee : 8/27/2008 Utility of contract guarantee To facilitate loan contracts.
To facilitate “transfer of property contracts” on credit.
To facilitate the employment contract.
Note: The contract of guarantee is a collateral contract obligation in case of the default of the primary contract obligator. Guarantee contract does not create independent contract liability. Essential elements of contract of Guarantee : 8/27/2008 Essential elements of contract of Guarantee Competent parties.
Valid offer and acceptance
Consent, free consent (misrepresentation s.142,Concealment of material fact s.143-Invalid agreement)
Valid consideration, Ss 2(d),23,25 read with 127.Principal obligation (debt) to be valid.
May be oral or written.
Purpose: To facilitate transfer of property contracts, loan contracts, service contracts etc. Some cases for discussion : 8/27/2008 Some cases for discussion Gulam Hussain v Faiyaz Ali AIR1940 Oudh 346. Erroneous decision u/s 2.d.Past consideration of sum due in lease contract for contract of guarantee.
Kalicharan v Abdul Rahman AIR 1918 PC 226 .Guarantee for lease contract after the conclusion of lease contract. Some cases for discussion-consent concept modification. : 8/27/2008 Some cases for discussion-consent concept modification. London General Omnibus Co. v Holloway(1912)2KB 72
“Defendant was invited to give guarantee for his servant concealing the fact of his dismissal for his dishonesty, committed another embezzlement”
Transaction (contract) is invalid Rights of the surety : 8/27/2008 Rights of the surety Three important points:
When the rights accrue to the surety.? S.140:( a) Before v performance by surety.(b) After performance by the surety.
What are the rights of the surety.? Ss.140,145.
Against whom the surety has the rights.? Ss.140,145,146.(a) Against PD.(b) Against creditor When rights accrue to the surety : 8/27/2008 When rights accrue to the surety 1.When the debt or performance becomes due
For securing the security.
To sue in the name of creditor.
2.When the surety has discharged the debt or performed the duty
Right of subrogation. S140
Surety steps in the shoes of the creditor.
Right to indemnity. S145 Some cases as reference point for discussion : 8/27/2008 Some cases as reference point for discussion Mamata Ghose v. United Industrial Bank AIR 1987 Cal.280:Surety came to the court after the debt became due.Anticipatory action. Rights against creditor : 8/27/2008 Rights against creditor 1.Right to securities (141)
2.Right to share reduction.
3.Right of set off. Rights against the co-sureties : 8/27/2008 Rights against the co-sureties 1.Right to contribution.
2.Effect of releasing the co-surety.