INDEMNITY

- Making a loss good

- Life insurance is not indemnity
o Because indemnity means making goo for a loss, while life cannot be
recovered or compensated in that sense
- Parties are indemnity holder and indemnifier
- Features
o Parties
o Consideration
o Conduct o the promisor
o Can be expressed or implied
- Consideration is the PROMISE
- Promisor cannot forcefully bring about loss to obtain indemnity
- There is a specific “trigger event”
o Breach
o Party’s fault
o Negligence
- It can be a contract in and of itself or a clause in a contract
- Section 124 – Definition of indemnity
o Loss caused to him by the conduct of the promisor himself, or by the
conduct of any other person
- Essentials
o Contingent on trigger event
o Expressly written or implied (from circumstances or conduct of parties
involved)
o Loss by promisor himself or by any other person
 Does not include loss due to NATURAL REASONS (contract would
become void due to Act of God)
 Unless force majeure clause is added
o All other essentials of valid contract
- MUST MENTION PERIOD IN ALL INDEMNITY CONTRACTS
- Types of indemnity
o Base indemnity
 Specific limitation – no limit on how much monetary compensation
 Specific cause of loss may or may not be mentioned
o Reverse/reflexive indemnity
 A indemnifies B for loss due to B’s own negligence
o Proportionate/Limited indemnity
 A indemnifies B for losses besides that those due to B’s negligence
rd
o 3 party indemnity (Insurance)
 A indemnifies B against liabilities or claims of C (if contract is
between A&C)
 o Financing indemnity (Loann)
 A party is indemnified and guaranteed
o Party-party indemnity
 Each party to a contract indemnifies the other
 Includes loss due to fault or even by accident
- Exclusion of indemnity
o Loss incurred by holder party’s deliberate acts or by fraud or crime even in
insurance contracts will not result in any indemnity being made

Indemnity Damages
May be brought before breach Only brought after breach
S/124 puts no duty on party to mitigate S/73 puts duty on party to mitigate
losses losses
Can be claimed bc of actions of 3rd party Can only be claimed bc of actions of
parties to the contract
Amount must be to restore to original Award may be more or less than actual
position loss occurred

- Limitation of amount to be paid under indemnity might exist because indemnifier

might not be able to afford uncapped indemnity
o Negotiated to a certain amount or to certain circumstances
- Limitation might be of time period too
- When to give indemnity?
o No general rule
o Based on circumstances
o Willingness of parties and their bargaining position

Indemnity Tort

Can create liability via an agreement Cannot create tortious liability via an
agreement
You are not under legal duty not to You are under legal duty not to trespass,
suffer loss slander, etc.
- You can have 2 remedies(e.g. both indemnity and tort) as long as it isn’t double
jeopardy for a party (Article 20(2)
- Indemnity and Insurance
o Insurance contracts do not explicit mention INDEMNITY
o Insurance contracts are also contingent
o Do not always follow S/124 – depend on parties’ agreement
o Business owner may buy indemnity liability to, let’s say, avoid loss by
workers of company
o Life insurance cannot be indemnity (all others are)
- Section 125 – RIGHTS OF INDEMNITY HOLDER
o 1 - Damages which he might have to pay in any suit wrt the same matter to
which the indemnity applies
 o 2 - Cost of filing suit in any such matter too as long as original promise isn’t
contravened and there is no foul play PROVIDED
 Indemnifier allows holder to bring/defend the suit
 Holder did not violate rights of indemnifier
 Holder acted prudently
o 3 – If there is an out-of-court compensation, then that amount should also be
indemnified as long as the compensation amount is judged to be prudent
- IT is not necessary for holder to give notice to the indemnifier of court proceedings,
but it is advisable
- For 125((1) and (2), only payable when absolute liability of holder is proved
- RULE OF INDEMNITY
o Holder must never be called upon to pay (it doesn’t mean repayment of
payment) – RICHARDSON RE, EX PARTY THE GOVERNORS OF ST.
THOMAS’S HOSPITAL
o Indemnity might be worth very little – Gajanan Moreshwar v. Moreshwar
Madan
- Indemnity claims are not subject to rules of remoteness of loss or 3rd party losses

GUARANTEE
- 3 people in the contract
o Principal debtor
o Creditor
o Guarantor
- S/126 – A contract to discharge liability of a third person
- SURETY’S LIABILITY IS ONLY SECONDARY
- It can be seen as an undertaking to indemnify if some other person does not fulfil his
promise
- Implied assent of everyone in the contract must be proved (ALL 3 MUST KNOW OF
EACH OTHER)
o Need not be 3 separate agreements between the parties
- Primary liability v. secondary liability (u know)
- S/127 – Consideration to surety
o Anything done or any promise made for benefit of PD (could be past event for
benefit of PD too)
- There is no DIRECT consideration between Guarantor and Creditor because their
relation depends on failure of primary contract
- Liability of surety is conditional
- Misrepresentation and concealment
o Debtor must give all the facts to the surety
o S/142 Guarantee obtained by misrepresentation is INVALID (regarding
material part of transaction)
o NO UTMOST FAITH – UBERRIMAE FIDES
- S/143 – Guarantee obtained by concealment is INVALID
- Rights of surety
o S/141 – rights against creditor
o S/140 and 145 – against PD
o S/146 and 147 – Against co-sureties
- S/141 – Rights against creditor
o If there is any security given by PD to C, then surety is entitled to the benefit
of every such security whether or not the surety knows of this security
 If C loses or parts with part of the surety, the surety is discharged to
that extent
- S/140 – Right of subrogation
o When payment by PD to C has become due
 Surety, after paying guarantee, gets all the rights against PD which C
had before (steps into C’s shoes)
 If contract says so, then PD might have to pay surety too)
- S/145 – Right to indemnity
o In every CoG, PD has implied promise to indemnify the surety of whatever
amount he has paid rightfully
- S/146 – Co-sureties liable to contribute
o Whether under same or different contracts and unless specified otherwise,
ALL CO-SURETIES must pay debt amount in equal shares
o Co sureties don’t necessarily have to know each other
- S/147 – Co-sureties liable in different sums
o If they are bound in diff sums then they will pay that much
- S/128 – Surety’s liability
o CO-EXTENSIVE with that of the PD, unless otherwise provided by the
contract
 Whatever is owed by PD to C, falls on surety too (maximum extent)
o Contract may provide for conditions precedent to surety’s liability
- S/129 – Continuing guarantee
o If guarantee extends to transactions beyond just one
 Surety does not pay entire sum amount
 Can pay in installments, but liability is only complete when he
pays off full and final amount
- S/130 – Notice of revocation
o Cannot be applied if there is an outstanding amount to be paid by surety
o Can only be
 In future transactions
 NOTICE MUST BE GIVEN TO CREDITOR
o Once notice of revocation has been sent, surety no longer liable for
transactions after that point
o If mode for revocation is given, it must be followed
- S/131 – Death of surety
 o Liability for any transactions PRIOR to his death will be borne by heir
(implied contract)
- S/132 – 2 sureties in a contract
o If 2 the sureties are in a contract such that only one of them will pay, it is not
the C’s business, C just wants the money
- S/133 – Discharge by variance
o Any variance maed without surety’s consent IN THE CONTRACT B/W PD
AND C DISCHARGES the surety for all transactions subsequent to the
variance
o Exception, when alteration is made wo surety’s consent but beneficial to
surety – Anirudhan v. The Thomco’s Bank Ltd
o The surety will be the sole judge to ratify the alteration (not even the court)
o Surety still liable for transactions prior to a prejudicial variance
- S/134 – Discharge by release of PD
o If PD is released from contract w/ C, surety is also released
o Since primary contract gone, secondary contract gone too
o Subject to any clause which preserves secondary liability even after primary is
gone
- Implied discharge/release – by any act or omissions of creditor as per these sections
o S/39
o S/53
o S/54
o S/55
o S67
- S/135 – Discharge by i) compromise ii) time extension iii) agreement not to sue PD –
w/o consent of surety
o C & PD sign contract, by which C makes a compromise or extends given time
or not to sue PD – surety discharged unless he consents to it
o DIFFERENCE FROM 133 – 133 talks about variance in original contract, 135
NEEDS NEW CONTRACT
o Discharged even if time extension is minor
o Discharged even if doesn’t bring a loss to surety
o DOESN’T MATTER IF IT WAS TO SURETY’S BENEFIT
- S/136 – Surety not discharged when agreement not to sue w/ 3rd party
o 3rd party is someone outside the 3 parties in the CoG
o Makes sure surety doesn’t exploit 133 and stays on the hook
o No alteration in original contract or new contract b/w PD and C
o Conversation cannot have taken place b/w C and PD wrt the change – that will
amount to variance
- S/137 – Mere forbearance does not discharge surety
o If PD fails to make payment and then guarantor also fails, C has the right to
sue PD
 o However, if C does not sue PD, then surety is not discharged
o Unless the time period of guarantor to remain attached to PD expires or if
Limitation Act comes in
o BECAUSE SURETY CANNOT BE SUBJECTED TO SOMETHING
WHICH HE WAS INITIALLY NOT AWARE OF
- S/139 – Discharge by act or omission by creditor
o Discharged if C does something inconsistent w/ rights of surety (from S/141)

BANK GUARANTEE
- Bank plays role of surety
- 2 kinds
o Unconditional – surety becomes liable to C without proof of breach – must
pay in accordance with Guarantee document
o Conditional – Surety becomes liable to the party only upon proof of breach of
terms underlying the contract
- Exceptions in unconditional bank guarantee:
o Fraud committed which would vitiate foundation of guarantee
o Anything resulting in irretrievable harm or injustice

BAILMENT
- Act where possession of good is transferred, NOT THE OWNERSHIP
- Not all bailments are enforceable and not all are defined under ICA 1872
- S/148 – Definition of bailment
o Bailment is delivery of goods from BAILOR to BAILEE upon a contract that
they shall be returned or disposed of, when the purpose as according to
directions of bailor is ACCOMPLISHED
o Has to be a purpose for the delivery (not charity)
o Bailee cannot become owner
- S 149 – How is delivery made
o Read with section 148
o Must have effect of putting goods in possession of INTENDED BAILEE
o Could be
 Actual delivery
 Constructive delivery
 Test? Whether dominion and control over the goods is retained
by bailee
- Bailment can exist without a contract but not under ICA
- May arise even when owner has not consented to the transfer
o Would still give rise to remedies that are not contractual
- Possession is the ESSENCE
- There is a tortious relationship as well – duty of care
 - Returning of goods or dealing with them as per instructions is also NECESSARY to
constitute bailment
- Essentials
o Must be a contract b/w 2 parties for delivery of goods
o Possession must be given from one to another (not just custody)
o Delivery must be upon a contract
o Purpose is necessary for transfer of possession
o Returning obligation on side of bailee
- TYPES OF BAILMENT
o From benefit viewpoint (Gratuitous bailment)
 For bailor’s benefit – safe keeping of goods without any charge by
bailee
 For bailee’s benefit – bailee gets to use without chage
 For both – one person gets service and other gets payment
o From reward viewpoint (Non-gratuitous bailment)

DUTY OF BAILEE
- S-151 – Duty to take care
o As much care as a man of ordinary prudence would take care of his own goods
under similar circumstances
o Onus is on bailor to prove he took sufficient precautions
o Quality of goods doesn’t matter, care must be taken anyway
- S-152 – Care to be taken w/o specific instructions
o Then bailee must take reasonable amount of care
o Any damage that occurs despite it, bailee is not responsible
o Bailee can also give up his RIGHTS u/s 151 by a contract
 If bailee has agreed to be liable absolutely, then any damage must be
compensated regardless of whether or not he took enough care
- S/153 – Not do anything inconsistent with T&C
o Voidable at the option of the bailor if this happens
- S/154 – Not to make unauthorized use
o Must make compensation to bailor for any damage arising out of such use
o If there is unauthorized use, it doesn’t matter if bailee took enough care
(absolute liability)
- S/155 – Mixture of goods
o If done without consent, then bailor and bailee shall have interest in proportion
to their respective shares in the mixture
- S/156 – Mixture when separable
o Property of goods remains with respective parties
o Bailee bears expense for any damage to goods bc of mixing
- S/157 – Mixture when non-separable
o Bailor will be compensated for loss of bailor’s goods
 - S/160 – Return of goods on expiration of time or accomplishment of purpose
o Must return without bailor having to demand
o If no expiration period mentioned, it must be reasonably understood
- S/161 – Bailee’s responsibility when goods are not duly returned
o If by default of bailor the goods are not returned at proper (Reasonable) time
 Bailor is responsible for any loss, destruction or deterioration of goods
from that time
o If bailee retains goods after their period is over, he does so at his own risk
o To determine damages, it is the amount that is the full value of the goods (or
cost of replacement)
o If bailee’s wrong act is ongoing, there is no question of act of God or
inevitable accident
- S/162 – termination of gratuitous bailment by death
o Either of bailor or bailee
o Goods go to family or interested party
- S/163 – Bailor entitled to increase on profit from goods bailed
o In absence of contract to the contrary, bailee is bound to deliver to the bailor
any profit which may have accrued from the goods bailed
BAILOR’S RESPONSIBILITIES
- S/150 – Bailor’s duty to disclose faults in goods bailed
o Only has duty to disclose if
 bailor is aware of them
 fault is such that it materially interferes with usage or puts
 bailee at extraordinary risk
o If he doesn’t disclose, he is liable to bailee for any damage arising DIRECTLY
out of these faults
o IF BAILMENT WAS NON-GRATUITOUS, BAILOR IS RESPONSIBLE
EVEN IF HE WASN’T AWARE OF THOSE FAULTS (HIGHER DUTY OF
CARE)
- S/158 – Repayment by bailor
o Only for gratuitous bailment (because there is payment anyway in non-
gratuitous)
o If the goods needed some work to be done or some necessary expense to be
borne by bailee, then bailor will remunerate
o Has to be NECESSARY expenditure and for purpose of bailed goods
- S/164 – Bailor’s responsibility to bailee
o For any loss which bailee sustains because bailor did not have actual authority
to make the bailment or to receive the goods or give directions wrt them
- S/166 – Bailee not responsible on re-delivery to bailor w/o title
o Then bailee is not responsible to actual owner, if he acted in good faith
o This section will not save the bailee if he had notice of who the actual owner is
 - S/167 – Rights of 3rd person claiming goods bailed
o If anyone besides bailor claims for goods, he may apply to court to stop
delivery of goods to the bailor and to decide the title of the goods
o Remedy of bailee is to file an inter-pleader suit proving that he got the goods
in good faith and therefore was just returning it to that bailor
- S/71 – Lost property
o A person who finds goods belonging to another and takes them into his
custody is subject to same responsibility as a bailee
o Duty of finder
 Take as much care of goods as if they were his own
 Try and make reasonable efforts in finding real owner
 Return goods to rightful owner
o If you sell something you found, you are punishable
 Must show diligent attempt at finding owner before you sell it
- S/168 – Right of finger to sue for specific reward
o Finder cannot sue owner for expenses incurred for trouble for preservation
o May withhold goods from real owner until he receives such compensation
(reasonable compensation)
o If owner has offered a reward for return of goods, finder may sue for such
reward and may retain until it is paid
o Basically a unilateral offer accepted by performance (contracts 1)
- S/169 – when founded thing which is commonly on sale, gets sold
o If:
 Owner cannot be found
 Owner won’t pay lawful charge to finder
o For something commonly on sale – MEANING SOMETHING WHICH
NEEDS TO BE KEPT ON SALE OTHERWISE ITS VALUE WILL
DIMINISH AND PERISH
o Then finder may sell it
 If thing is in danger of perishing or losing greater part of its value
 When lawful charges of finder amounts to 2/3rd of its value
- If bailor pays necessary charge after it has been sold, amount earned through sale is
given to bailor
- If bailee makes good efforts and after a reasonable time period has sold it off and
THEN the real owner comes forward and claims it, some nominal amount from sale is
given to the bailor
LIEN
- Right of one man to retain that which is in his possession belonging to another until
CERTAIN DEMANDS OF THE PERSON IN POSSESSION ARE SATISFIED
- Supposed to reduce burden of courts
- THIS IS WHY ALL BAILMENTS ARE NOT DEFINED AS CONTRACTUAL
OBLIGATIONS
 o RIGHT OF LIEN CAN EXIST WITHOUT CONTRACT
o No need of pre-condition being attached for it
o This right arises by operation of law, comes into existence when good goes
into possession of someone who isn’t the owner
- Empowers people to get paid for services
S/170 - Particular lien
- Where bailee in accordance with purpose of bailment has rendered any service
INVOLVING EXERCISE OF LABOR OR SKILL in respect of goods bailed
o Without any contract to the contrary, he has right to retain such goods until he
receives due remuneration of the service he has rendered
- RIGHT IS ONLY LIMITED TO RETAINING goods
- Essentials
o Labour or skill must have been as per purpose of bailment
o Labour or skill must have improved or added value of goods bailed
o Only on those goods on which labour or skill has been bestowed

S/171 – General lien

- Extends to
o Bankers
o Factors
o Wharfingers
o Attorneys
o Policy brokers
- They may, in absence to contract of contrary, retain, as a security for a general balance
of account, any goods to them
- Basically, if you do not get paid, you can choose to withhold your service
- Limited to retaining services or goods
- DIFFERENCE – General lien is right to retain property on account of general balance
of accounts, while particular lien is withholding property because there was some
development of the good
- Bankers lien
o Lien on all bills received from customer in ordinary course of baking
o Meaning that bankers can take security (pledge) until loan is paid
o Banker cannot cut money from personal savings, only security

Bailment Pledge
For some purpose, not as security Only for security purpose
Cannot sell Can sell after giving prior notice
Can use Cannot use
Possession remains with bailee until Sometimes, goods can remain with pledgor
purpose is achieved for special purpose
Cannot retain goods bailed U/S 173 can retain goods for
i) Payment of debt or performance
 of promise
ii) For paying interest on the debt
iii) For all NECESSARY expenses
incurred in respect of
preservation of pledged goods

PLEDGE
- Keeping an item with someone else for an outstanding amount that is pending
- S/172 – Definition
o Bailment of goods as security for payment of debt or performance of a
promise is called ‘pledge’
o Bailor – pawnor (who pleges)
o Bailee – pawnee
- Delivery of goods
o Transfer of possession from one to another is necessary, cannot be done in the
FUTURE
o Can be actual or constructive
- Much more formal than bailment
- PUROSE OF giving goods must be security for payment of debt
- Pawnee becomes a secured creditor when the goods are pledged
o He gets a prior claim to the goods as compared to other creditors to whom
the pawnor is indebted to
- S/158 allows bailee to recover all costs incurred in preservation of goods, S/175
allows pledgee to recover EXTRAORDINARY costs incurred in preservation of
goods (right to get compensated, not a right to retain unless it is necessary costs)
Hypothecation
- Where possession of movable property is retained by the borrower and certain rights
in that property are transferred to the person in whose favour the property is
hypothecated
- There is no right of lien here
- Since the possession is with the borrower, there is no right of lien here and in case of
default, the lender (hypothecatee) cannot sell the goods
- However, there might be a specific agreement which empowers the hypothecatee to
take possession of the goods and sell it off
- Difference from pledge: Pledgee has possession and can thus sell in case of default
- Remember the buying car example (costs 50L but you only have 20L)
- S/173 – Pawnee’s right to retain
o May retain for
 Payment of debt or performance of promise
 For paying interest on the debt
 For all NECESSARY expenses incurred in respect of preservation of
pledged goods
- S/174 – Pawne not to retain for debt or promise other than that for which goods are
pledged
o In absence of contract to contrary
o General lien being a specific provision overrides a general provision such as
S/174
 In case of banks, as per banker’s lien under S/171, it extends to all
other pledges and banker can retain pledged goods even if debtor has
not cleared his amount with respect to another loan
o pledgee can retain goods to clear other advances too
- S/175 – Pawnee’s right of EXTRAORDINARY expenses incurred
o Pawnee is entitled to receive from pawnor extraordinary expenses for
preservation
o (173 talks about retainment and for necessary expenses)
- S/176 – Pawnee’s right wherever pawnor makes default
o Pawnee may bring suit against pawnor and retain goods pledged as
COLLATERAL
 Or may sell it with prior notice to the pawnor
 Not necessary for pawnor to read this notice
o Pledged goods cannot be dangerous unlike in bailment
 Since pawnee can’t use goods unlike bailor can
o Duty of bailee IS NOT EQUAL TO duty of pawnor
o If proceeds of sale is less than debted amount, PAWNOR MUST PAY LEFT
OVER AMOUNT
 If proceed are in surplus, pawnee will pay back
o If debtor defaults, pledgee may
 Bring suit against pledgor
 Sell goods after notice
 May recover debt by doing all this stuff
- Pledge by joint account holer
o If co-owner in possession of goods with consent of all other co-owners,
pledged goods, it is valid
- Rights of pledgee against other creditors
o Special property rights and a lien which is not ordinary and therefore has
greater claim as compared to any other creditor
- Pledged goods if lost and found
o If lost and damaged due to pledgee’s fault, and he fails as u/s 151
o If negligence by pledgee, pledgee is liable for loss of goods and not entitled to
succeed in claim against pledgor
- WHO CAN PLEDGE?
o In exceptional cases, person without authority or ownership of goods but
having possession of goods with owner’s consent, can make pledge and confer
rights on pledgee
PLEDGE BY NON-OWNER
- S/178 –
o Where MA has possession of goods with consent of owner and is acting in
ordinary course of business as MA, then pledge is authorized (if pawnee acts
in good faith)
o Requirement
 Pledge should be done by MA – someone who has been entrusted w/
goods
 Must have possession with consent
 Must have pledged goods in ordinary course of acting as MA
 If pledgee does not realize MA is acting w/o authority, and there is a
loss afterwards then it is borne by MA
- Agents are of 2 types
o MA – 2(9) of SOGA – having authority to either sell or buy goods or to raise
money as security
 Factor: possession is given for the purpose of selling them
 Broker: negotiates and makes contracts for sale on behalf of principal
 Commission agent: buys and sells and gets commission
 Del credere agents: basically a surety – takes extra consideration and
guarantee to creditor that principal will pay, or the agent will pay
o Non MA – insurance agents, counsellors or advocates
 THEY CANNOT MAKE PLEDGE BECAUSE NO AUTHORITY
- Document of title (what are marketable items) – U/S 2(4) of SOGA
o Bill of lading
o Clock warrant
o Ware housekeeper’s certificate
o Warrant or order for delivery of goods and any other documents used in
ordinary course of business
o WHAT IS IMPORTANT is that pledgee should act in good faith and without
knowledge that MA is not authorized to pledge
- Possession with consent of owner
o Even if agent did not have authority, he must have obtained possession with
consent of owner
o Only in the capacity of MA should these goods have been obtained
- S/178 – Pledge by person in possession under voidable contract
o If pawnor obtained pledged goods by a contract voidable u/s 19 (fraud,
misrepresentation, coercion, etc.) and the contract wasn’t rescinded during
time of pledge, then pawnee has ordinary title over goods as long as he acted
in good faith and was unaware of the voidability of the original contract
o Therefore, if I obtained goods via fraud or misrep or etc. and pledged them
before the original contract is rescinded, it is a valid pledge
 Affected the person who was entitled to rescind
Some soga sections?
- S/177 – Defaulting pawnor’s right to redeem
o If pawnor makes the payment after the stipulated time to pay has passed, then
he can redeem the goods pledged by him at any time before they have been
sold
 But must pay additional expenses arising due to his default
o Sale of pledged goods extinguishes the right to redeem
o PLEDGEE MUST GIVE NOTICE OF SALE FIRST
- S/179 – Pledgee where pawnor has only limited interest
o Then pawnor can only recover the amount which is as much as the amount of
monetary interest he has in the pledged goods

AGENCY
-