Some contracts have special rules due to their nature and business importance. The Indian Contract Act covers special contracts such as indemnity, guarantee, bailment, pledge and agency. These are common in insurance, banking, warehousing, loans and commercial representation. This topic gives exam-focused meanings, key features, and differences.
A contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor or by the conduct of any other person.
Parties:
Indemnity-holder can recover from indemnifier:
A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.
Parties:
Liability:
Rights (exam keywords):
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Rights of indemnity-holder (any three):
Indemnity vs guarantee (any three):
Business law encompasses all of the laws that dictate how to form and run a business. This includes all of the laws that govern how to start, buy, manage and close or sell any type of business. Business laws establish the rules that all businesses should follow.
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Some contracts have special rules due to their nature and business importance. The Indian Contract Act covers special contracts such as indemnity, guarantee, bailment, pledge and agency. These are common in insurance, banking, warehousing, loans and commercial representation. This topic gives exam-focused meanings, key features, and differences.
A contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor or by the conduct of any other person.
Parties:
Indemnity-holder can recover from indemnifier:
A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.
Parties:
Liability:
Rights (exam keywords):
Bailment is the delivery of goods by one person to another for some purpose, upon a contract that the goods shall be returned or otherwise disposed of according to directions when purpose is accomplished.
Parties:
Bailor’s duties: disclose faults, repay necessary expenses (in some cases).
Bailee’s duties: take reasonable care, not misuse, return goods, return accretions.
Pledge is bailment of goods as security for payment of a debt or performance of a promise.
Parties:
Agency is a relationship where one person (agent) is employed to act on behalf of another (principal) and represent him in dealings with third parties.
Agent: follow instructions, act with skill and diligence, render accounts, avoid conflict of interest.
Principal: pay remuneration, indemnify agent for lawful acts, reimburse expenses.
Agency terminates by:
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Indemnity and guarantee are special contracts used widely in business.
Contract of indemnity: One party (indemnifier) promises to save the other (indemnity-holder) from loss. Example: A promises to indemnify B against loss from a lawsuit.
Contract of guarantee: Surety promises the creditor that he will discharge the liability of the principal debtor if the debtor defaults. Example: Bank loan guarantee by a guarantor.
Thus, indemnity focuses on compensation for loss, whereas guarantee ensures performance of a third person’s obligation.