1 Where These Sit in the Act

These four are special contracts under the Indian Contract Act, 1872. Knowing the section ranges alone earns easy marks.

2 Know the Parties (Very Important)

3 Contract of Indemnity (Sec 124–125)

Section 124 — A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is a contract of indemnity.

• Two parties: indemnifier and indemnified. Only one contract.
• Liability of the indemnifier is primary.
• Indian definition covers loss caused by human conduct — not (strictly) by accident or act of God. (English law is wider.)
• All insurance contracts except life insurance are contracts of indemnity. (Life insurance is a contingent contract, not indemnity.)

Rights of the Indemnity-Holder (Section 125)

When sued, the indemnity-holder can recover from the indemnifier:

• All damages he is compelled to pay in any suit.
• All costs he is compelled to pay in such suit (if he acted prudently).
• All sums paid under any compromise of such suit (if the compromise was prudent).

4 Contract of Guarantee (Sec 126–147)

Section 126 — A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. It involves three parties and three contracts. A guarantee may be oral or written in India.

Core Rules

• Consideration (Sec 127): Anything done, or any promise made, for the benefit of the principal debtor is sufficient consideration for the surety.
• Surety’s liability (Sec 128): Co-extensive with that of the principal debtor, unless the contract provides otherwise. (Most-asked point!)
• Continuing guarantee (Sec 129): Extends to a series of transactions.
• Revocation (Sec 130): A continuing guarantee may be revoked for future transactions by notice to the creditor.
• Death of surety (Sec 131): In the absence of a contract, the surety’s death revokes the continuing guarantee for future transactions.
• Sec 142 / 143: Guarantee obtained by misrepresentation or concealment of material facts is invalid.

Discharge of Surety

• Variance (Sec 133): Any change in terms without surety’s consent.
• Release of principal debtor (Sec 134).
• Composition / promise to give time / not to sue (Sec 135).
• Creditor’s act or omission impairing surety’s remedy (Sec 139).
• Loss of security by the creditor (Sec 141) — discharged to the extent of the security’s value.

Rights of Surety

5 Indemnity vs Guarantee

6 Bailment (Sec 148–171)

Section 148 — Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall be returned or disposed of as directed once the purpose is accomplished.

Essentials

• Delivery of goods (movable property only).
• For a specific purpose.
• Return / disposal of the same goods as directed.
• Ownership is NOT transferred — only possession passes. (Key point.)

Types & Duties

• Gratuitous bailment (no reward) vs Non-gratuitous bailment (for reward).
• Bailor’s duty (Sec 150): disclose known faults in the goods.
• Bailee’s duty of care (Sec 151): take care as a man of ordinary prudence would take of his own goods of the same value. (Most-asked!)
• Sec 152: If the bailee has taken Sec 151 care, he is not liable for any loss/damage.
• Sec 154: Bailee is liable for any loss from unauthorised use of the goods.

Lien of Bailee

• Particular lien (Sec 170): Right to retain only those goods on which work/service was done, for unpaid charges.
• General lien (Sec 171): Available to bankers, factors, wharfingers, attorneys of a High Court and policy brokers — right to retain any goods for a general balance of account.
• Finder of goods (Sec 168–169): Treated as a bailee; may retain goods until rewarded/reimbursed and may sell in certain cases.

7 Pledge / Pawn (Sec 172–179)

Section 172 — The bailment of goods as security for payment of a debt or performance of a promise is called a pledge. The bailor is the pawnor; the bailee is the pawnee.

Rights of the Pawnee

• Right of retainer (Sec 173–174): Retain the goods until the debt is paid (only for that debt, unless agreed otherwise).
• Extraordinary expenses (Sec 175): Recover expenses incurred for preserving the goods.
• On default (Sec 176): The pawnee may either (a) sue the pawnor and retain the goods as collateral, OR (b) sell the goods after giving reasonable notice of sale. (Very important — sale needs reasonable notice.)

Right of the Pawnor

• Right to redeem (Sec 177): The pawnor may redeem the goods any time before the actual sale by paying the debt (with expenses).

8 Bailment vs Pledge

9 Banking Angle (High Marks)

Bank Guarantee (BG)

A contract of guarantee where the bank is the surety, undertaking to pay the beneficiary if its customer defaults. Two main types: Financial Guarantee (assures payment of money) and Performance Guarantee (assures completion of work/contract).

Indemnity in Banking

Banks take an indemnity bond from customers for actions like issuing a duplicate demand draft / fixed deposit receipt, or settling a deceased depositor’s account, to protect against future loss.

Pledge vs Hypothecation vs Mortgage (Must-Know)

10 Important Sections — Quick Reference

11 Practice MCQs (Tap to Reveal Answers)

A mix of previously-asked and high-probability questions. Attempt first, then tap to check.