Special Contracts: Indemnity; Guarantee; Bailment and pledge; Agency.

Special Contracts



The term ‘Indemnity` Simply means ‘Making Somebody Safe` or ‘Paying Somebody back`.

Section 124 of contract Act defines that ‘‘A contract by which one party. Promises to save the other from loss caused to him by the conduct of the promise himself by the conduct of any other person, is called a conduct of indemnity”.

The party who gives indemnity or who promises to compensate for or to make good the loss, is called. Indemnifier and the party for whose protection or safety the indemnity is given or the party whose loss is made good is called ‘Indemnified’ or ‘indemnity holder’. Important features of an indemnity contract –

  1. Two party.
  2. Promises for pay compensation of loss/damage.
  3. Loss/damage may be the own or other person.
  4. Creation of liabilities.
  5. It must be faith.
  6. All essential features of valid contract.
  7. Compensation for actual loss/damage.
  8. It may be express or implied. Loss/damage may be caused by some event, or accident, or some natural phenomenon or disaster.

Rights of Indemnified (Indemnity-Holder) 

  1. Rights to claim for all damages/losses.
  2. Rights to claim for all costs which is related to contract.
  3. Rights to claim for all sums which his may have paid for contract.

Liabilities/Duties of Indemnified 

  1. Liabilities to pay all damages/losses.
  2. Liabilities to pay all costs related to contract.
  3. Liabilities to pay all sum which is received by sell for contract from indemnified.

Guarantee Contract

The object of the contract of guarantee is to enable. A person to obtain an employment, or a loan, or some goods or service on credit.

According to section 126 of the contract Act ‘‘A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.”

The person who gives the guarantee is called the ‘Surety’ or ‘guarantor’ & the person in respect of whose default the guarantee is given is called the principal debtor or he is the party on whose behalf. Guarantee is given and the person to whom the guarantee is given is called the ‘Creditor’.

Essential features of a Guarantee Contract

  1. Three parties
  2. Three agreement
  3. Concurrence of the three parties
  4. Control may be experts or implies
  5. It may be oral or written
  6. Liability of surety is secondary is dependent on principal debtor’s default.
  7. Guarantee must be in the knowledge of debtor.
  8. All essential of a valid contract.
  9. Guarantee must not be obtained by means of misrepresentation.
  10. Existence of a primary liability.


Kinds of Guarantee 

  1. Specific or Simple Guarantee: When a guarantee is given in respect to a single debt or specific transaction is to come to an end when the guarantee debt is paid or the promise is duly performed. It is called a specific or simple guarantee.
  2. Continuing guarantee: Section 129, of the contract Act defines a guarantee which towards to a series of transaction, is called a continuing guarantee, thus, a continuing guarantee is not confined to a single transaction but keeps on moving to several transaction continuously.

Revocation of Guarantee 

Revocation of guarantee means cancellation of guarantee already accrued, it may be noted that the specific guarantee cannot be revoked if the liability has already secured. However a continuing guarantee can be revoked and on the revocation of such a guarantee. The liability of the surely or guarantor comes to an end for the future transaction. The surety continues to be liable for the transactions which have taken place up to the time of revocation. A continuing guarantee may be revoked in any of the following waysA Guarantee may be revoked in any of the following ways-

  1. By notice of revocation.
  2. By death of surely.
  3. By discharge of surely in various circumstances
  4. By novation (Sec.62)
  5. By variance in terms (Sec. 133)
  6. By release/discharge of principal Debtor (Sec.-134)
  7. When the creditor events in to an agreement with the principal debtors (Sec.13..)
  8. By creditor act or omission impairing surety’s eventual remedy (Sec. 139)
  9. By loss of security “(Sec. 141)
  10. By invalidation of contract (Sec.142,143,144)
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