Bailment Contracts

Bailment Contracts

A Contract where one party delivers goods to the other upon return basis to fulfil a specific purpose is called bailment contract. It includes two parties namely; bailer and bailee. The person who is delivering the goods is called bailer and the person to whom goods are delivered, is called bailee.

Example: A has handed over his fan to B for the purpose of repairs. It is bailment contract. A is bailer and B is bailee. Similarly X has handed over his dress Y for the purpose of washing. It is also bailment Contract where X is bailer and Y is bailee.

Types of Bailment Contracts

The bailement contracts are classified into Gratuitous bailments and Non – Gratuitous bailments.

Gratuitous Bailments: If there is only one directional consideration, it is called Gratuitous bailment. In here, the bailment contract is for the benifit of either the bailer or the bailee only.

Example 1: Mr. A, while going to abroad, has handed over his gold to this friend namely B for Safe custody. Here bailer only is getting benefited.

Example 2: Y has taken Scooter for X who is his friend for 1 day. Here only bailee is being benefited.

Non – Gratuitous bailments: If there is two directional consideration it is called Non-Gratuitous bailment. In here, the bailment contract is for the benefit of both parties.

Example: X has handed over his dress to B who is owner of a laundry for washing. At a charge of Rs. 10/-. Here both parties are being benefited.

Features of Bailment

1.                   In case of bailment, as there is delivery of goods, there will be change in procession.

2.                  Though there is change in procession, there will be no change in title.

3.                  Bailment includes return of goods after fulfilment of purpose.

4.                  In delivering the goods, there must be specific purpose.

Difference between Bailment and Sale

BAILMENT	SALE
1. Here parties are called bailer and bailee.	1. Here parties are called buyer and seller.
2. There must be returnable.	2. Such rule is not applicable.
3. There is no question of Shipping of title. Though procession goes to bailee, title rests with bailer.	3. Here title will get shifted from seller to buyer.
4. The concept of bailment is applicable to movable property only.	4. The concept of Sale is applicable to both movable and immovable.
5. Bailment may be with one directional consideration or two directional consideration.	5. Sale always will be with two directional consideration.

Indemnity Contract

Indemnity Contract

In the contract of Indemnity, a person agrees to rescue another person who is a party of some other contract and come across any loss out of the same. The loss can be incurred from the act of any party or by any means in that contract. In the indemnity contract, the person who comes to the rescue of the other person to make good the loss is known as Indemnifier. The other one whose loss is made good is known as Indemnified or also called as Indemnity-Holder.

Example: A and B are in the contract of Indemnity. B is in a contract with C regarding a sum of Rs 10000/-. According to the contract of indemnity between A and B, A agrees to rescue B from any consequence that occurs from the contract of B’s of Rs 10000/- with C.

Types of Indemnity

The indemnities are of two types;

1.                    The Express Contract of Indemnity

2.                  The Implied Contract of Indemnity

Express Contract of Indemnity: When the contract of indemnity is written or orally consented, then such indemnity contracts are said to be Express Contract of Indemnity.

Example: A and B are into the contract of Indemnity. A agrees to reimburse the loss incurred by B from a contract with C of some so-called amount.

Implied Contract of Indemnity: When the contract of indemnity is applied by a statute or by a common law that is in existence, then such indemnity contracts are said to be Implied Contract of Indemnity.

Example: A and B are agent and principal. A has to supply goods to B for his business. A supplied goods but B did not want them and denied taking the same. A can sell the goods and if he incurs any loss while selling them, then B has to make good the loss of A and the statue or the common law will ensure the same.

In Indian Law, the express contract of indemnity is only covered and the implied contract of indemnity is also covered by the decision of the court. The law in India says that the loss that incur shall be due to the conduct of the person. The claim is actionable in India. The contract of indemnity do not applies to the contract of Insurance.

In English law, both the express and the implied contracts of indemnities are covered. The loss that was incurred can be in any way. The law also states that the indemnity can be assigned. The insurance contract is an indemnity contract in English Law.

Rights and Duties of Agents

Rights and Duties of Agents

Rights of Agents.

1.                   Right of Retainer: Agent has right to deduct the amount which is due to him by principal, from amount payable to principal.

2.                  Right of stoppage in transit: In case where agent is personally liable, he has right to stop the goods in transit. The good may be moving towards customer or principal.

3.                  Right to claim Remuneration: As per the terms of agency contract, agent has rights to claim remuneration.

4.                  Right of Indemnity: Principle of indemnity gets operated between principal and agent where principal is implied indemnifier and agent is implied indemnity holder. So agent can make principal answerable for all types of sufferings.

5.                  Right of lien: Agent can exercise right of lien but contract act has not specified whether it is general lien or particular lien. Therefore the nature of agent’s lien depends upon mutual understanding.

Duties of Agents

1.                   Agent should follow the instructions given by the principal.

2.                  If agent comes across any complicated situation, he has to communicate that situation to principal and his advice is to be obtained.

3.                  Agent should behave in his capacity as agent, he should not run the transaction in his own name.

4.                  Agent should not make secret profits by utilizing reputation of the principal.

5.                  Agent should safe guard property of principal particularly upon happening of events like death of principal, insolvency of principal, etc.

6.                  Agent should maintain proper accounting records to enrol the transactions run by him. Agent has to remit amounts to principal properly.

7.                  Agent has to remit amounts to principal properly.

8.                  Agent should not carry on delegation.

Liabilities of Agents.

Actually agents binds over principal to his activities but there are some situations where agent comes across personal liability. Those situations are as follows;

1.                   Terms of contract of agency may create personal liability to agent.

2.                  The tradition which is in operation in that particular type of business. May also create personal liability to agent.

3.                  If agent does not behave in his capacity as agent and thus runs the transaction in his own way, personal liability arises.

4.                  When agent acts for foreign principal, agent is personally liable.

5.                  Pretending agent is personally liable.

6.                  When agent acts for principal who has not come into existence, agent is personally liable.

7.                  In case where principal cannot be sued, Customer sues agent and thus agent is personally liable.

8.                  When agency is coupled with interest then also agent is personally liable.

Agency by Ratification

Agency by Ratification

Subsequent adoption of an activity is called ratification. Soon after ratification, the person who has done the activity becomes agent and that person who has given ratification becomes principal.

Ratification is of two types. Namely;

·                     Express Ratification and

·                     Implied Ratification.

The ratification where there is wording and expression is called express ratification. For example: Without A`s direction, B has purchased goods for the sake of A from C. There after, A has given his Support to B`s activity, it is called ratification and now A is principal and b is agent.

The ratification where there is no expression is called implied ratification. Here the mode of behavior of the party indicates that support is given to activity concern. For example: Mr. Q has P`s money with him. Without P`s direction Q has lent that amount to R. Thereafter, R pays interest directly to P and P has taken the amount of interest. It indicates that P has given his support to Q`s activity.

Essentials of Valid Ratification:

1.                   The person, who is going to give ratification, must be in existence at the time of activity. Let us consider pre-incorporation contracts made by promoters. Company comes into existence on the date of incorporation. Therefore company is not in existence at the time of pre-incorporation contracts. If company gives ratification to pre incorporation contracts, it is not valid ratification. Hence to pre-incorporation contracts, promoters are personally liable.

2.                  The person who is going to give ratification should have capacity to contract, at the time of activity as well as at the time of ratification. In Armugan Vs Dorai Singh the minor obtains loan from money lender and executes a deed. Before repayment of debt, he becomes a major and executes another bond. Court decides that the second bond also is not valid because the person who has given ratification has no capacity to contract at the time of activity i.e. at the time of getting loan.

3.                  Ratification should be given within reasonable period after the activity the concept of reasonable period depends upon nature of the situation.

4.                  Ratification must be absolute. To entire activity ratification is to be given. Partial ratification carries no validity.

5.                  The fact of ratification must be communicated to all parties in connection with the activity.

6.                  Ratification attains validity only when it is given with full knowledge of facts relating to the activity.

7.                  The activity which is going to be ratified must be a lawful activity. For example: for the sake of A, B has murdered C. If A gives his support to B`s activity, it is not valid ratification.

8.                  The person who is going to give ratification should have right to do such activities. For example: If company gives ratification to an Ultravires activity it is not valid.

9.                  Ratification relates back to date of activity. Though ratification takes place after the date of activity, it will be assumed that ratification is given on the date of activity.

10.               Ratification should not lead to breach of contract. In other words ratification should not be harmful to third party. For example: There is a rental agreement between A and B according to which three months notice is needed at the time of vacation of house. On one day C, A`s son, has asked B to vacate the house on that day itself. A has given his support to C`s activity. It is not valid ratification because it leads to breach of rental agreement and at the same time it is harmful to B.

Indemnity and Guarantee Contrac

Indemnity and Guarantee Contract

Indemnity Contract: A contract where one party promises to save the other from any loss caused to him by the conduct of promissor himself or any other person is called contract of indemnity, (Section 124) Indian Contract Act, 1872.

Indemnity contract includes two parties namely; Indemnifier and Indemnity holder. The person who is promising to pay compensation is called Indemnifier and the person who`s loss is compensated is called Indemnity holder.

·                     Example: There is a contract between X and Y according to which X has to Sell a tape recorder (which is selected) to Y after three months. On the next day of their contract Z has come to X and has insisted on selling the same tape recorder to him (Z). Here Z is promising to compensate X for any loss faced by X, due to selling the tape recorder to Z. X has agreed. Now the contract which has got formed between X and Z is called indemnity contract, where Z is indemnifier and X is indemnity holder.

Guarantee Contract: A contract to perform the obligation or to discharge the liability of a third party in case of its default is called contract of guarantee, (Section 126) Indian Contract Act, 1872.

Guarantee contract includes three parties namely; Creditor, Principal Debtor and Surety. The person who is granting the loan, the person who is utilizing the amount of loan is principal debtor and the person who is giving guarantee is called surety or guarantor or favored debtor. In case of guarantee contract there will be two types of liabilities namely; Primary liability and secondary liability. Primary liability will be with principal debtor and Secondary liability goes to surety.

·                     Example: Y is in need of Rs. 10000/-. Upon guarantee by Z, Y has got the amount from X. Here X, Y and Z are creditor, principal debtor and surety respectively.

Difference between Indemnity Contract and Guarantee Contract

Number of Parties: Indemnity contract includes two parties namely, indemnifier and indemnity holder. But guarantee contract includes three parties namely creditor, Principal debtor and surety.

Number of Contracts: In case of indemnity contract, as there are only two parties, there is possibility for existence of one contract only. But a contract of guarantee includes three sub-contracts.

Nature: As indemnity contract includes two parties and one contract, it can be said that indemnity contract is simple in nature. But guarantee contract includes three parties and three sub-contracts and hence be said that guarantee contract is complex in nature.

Liability: In contract of guarantee there will be two types of liabilities namely; primary and secondary liabilities which will be with principal debtor and surety respectively. But in contract of indemnity there is no classification and sharing of liability where the absolute liability rests with indemnifier.

Recovery: In case of indemnity contract the indemnifier, after compensating indemnity holder`s loss, cannot recover that amount from any person. But in contract of guarantee, if surety makes payment to creditor, he (surety) can recover that amount from principal debtor.

Interest of parties: Indemnity contract gets formed upon indemnifier`s interest and guarantee contract gets formed upon principal debtor`s interest.

Rights and Duties of Bailer

Rights and Duties of Bailer

Rights of Bailer

1.                   If bailee does not take care and destruction of goods takes place, bailer can claim compensation.

2.                  If bailee uses the goods for un-authorized purposes, bailer has the right to claim compensation.

3.                  Bailer has the right to claim return of goods.

4.                  Bailer has right to claim not only delivered goods but also accruals on goods if any.

5.                  In case where bailee has mixed the goods and they are of sufferable nature, bailer can claim cost of separation from bailee.

6.                  In case where the goods are of insufferable nature, bailer has right to claim compensation.

7.                  Bailer has right to repudiate the Contract of bailment whenever he wants but, by doing so, if bailee comes across any suffering, bailer has to compensate.

Duties of Bailer

1.                   Duty to dispose faults: Bailer should disclose faults  present in goods at  the time of making delivery. Faults are of two types namely ; Known faults and Un-known faults. On the other hand bailments also are of two types namely Gratuitous bailment and Non-Gratuitous bailment. In case of gratuitous bailment, bailer is liable to compensate for bailee injuries arising out of known faults. In Gratuitous bailment, bailer is not answerable to un-known faults. In case of Non-Gratuitous bailment, bailer is answerable to both known faults and Un-known faults.

2.                  Duty to contribute for expenses: Bailer should Contribute for expenses incurred by bailee. In case of Gratuitous bailment, bailer need not contribute for ordinary expenses and extra ordinary expenses or to the contributed by bailer. In case of Non-Gratuitous bailment, bailer should contribute for both ordinary expenses and extra ordinary expenses.

3.                  Duty with regard to defective title: In case where bailer has delivered the goods with defective title, the bailee may come across suffering from the side of true owner due to bailers defective title. In such a case bailer with defective title should compensate bailee.

4.                  Duty to Indemnify: Principal of indemnity operates between bailer and bailee, where bailer becomes implied indemnifier and bailee becomes implied indemnity holder. So bailer has duty to indemnify bailee.

5.                  Duty to take the Goods back: After fulfillment of purpose bailee returns the goods to bailer. Then bailer should take them back. If bailer refuses to take the goods back, bailer has to compensate bailee.

Agency by Ratification

Agency by Ratification

Subsequent adoption of an activity is called ratification. Soon after ratification, the person who has done the activity becomes agent and that person who has given ratification becomes principal.

Ratification is of two types. Namely;

·                     Express Ratification and

·                     Implied Ratification.

The ratification where there is wording and expression is called express ratification. For example: Without A`s direction, B has purchased goods for the sake of A from C. There after, A has given his Support to B`s activity, it is called ratification and now A is principal and b is agent.

The ratification where there is no expression is called implied ratification. Here the mode of behavior of the party indicates that support is given to activity concern. For example: Mr. Q has P`s money with him. Without P`s direction Q has lent that amount to R. Thereafter, R pays interest directly to P and P has taken the amount of interest. It indicates that P has given his support to Q`s activity.

Essentials of Valid Ratification:

1.                   The person, who is going to give ratification, must be in existence at the time of activity. Let us consider pre-incorporation contracts made by promoters. Company comes into existence on the date of incorporation. Therefore company is not in existence at the time of pre-incorporation contracts. If company gives ratification to pre incorporation contracts, it is not valid ratification. Hence to pre-incorporation contracts, promoters are personally liable.

2.                  The person who is going to give ratification should have capacity to contract, at the time of activity as well as at the time of ratification. In Armugan Vs Dorai Singh the minor obtains loan from money lender and executes a deed. Before repayment of debt, he becomes a major and executes another bond. Court decides that the second bond also is not valid because the person who has given ratification has no capacity to contract at the time of activity i.e. at the time of getting loan.

3.                  Ratification should be given within reasonable period after the activity the concept of reasonable period depends upon nature of the situation.

4.                  Ratification must be absolute. To entire activity ratification is to be given. Partial ratification carries no validity.

5.                  The fact of ratification must be communicated to all parties in connection with the activity.

6.                  Ratification attains validity only when it is given with full knowledge of facts relating to the activity.

7.                  The activity which is going to be ratified must be a lawful activity. For example: for the sake of A, B has murdered C. If A gives his support to B`s activity, it is not valid ratification.

8.                  The person who is going to give ratification should have right to do such activities. For example: If company gives ratification to an Ultravires activity it is not valid.

9.                  Ratification relates back to date of activity. Though ratification takes place after the date of activity, it will be assumed that ratification is given on the date of activity.

10.               Ratification should not lead to breach of contract. In other words ratification should not be harmful to third party. For example: There is a rental agreement between A and B according to which three months notice is needed at the time of vacation of house. On one day C, A`s son, has asked B to vacate the house on that day itself. A has given his support to C`s activity. It is not valid ratification because it leads to breach of rental agreement and at the same time it is harmful to B.