80 Special contracts: Contracts of indemnity and guarantee; contracts of bailment and pledge; Contracts of agency

80.1 Why “Special” Contracts?

Part II of the Indian Contract Act, 1872 (§§ 124-238) deals with four “special” categories of contracts that arise repeatedly in commerce — Indemnity & Guarantee (§§ 124-147), Bailment & Pledge (§§ 148-181), Agency (§§ 182-238) — and the Act lays down their unique rules in addition to general contract principles. They are special because each has distinct duties, rights, and remedies for the parties.

80.2 Contract of Indemnity (§§ 124-125)

80.2.1 Definition (§ 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.

Indemnity — Key Points

Parties: Indemnifier (promisor) and Indemnity-holder (promisee).
Subject: actual loss (English law also includes liability not yet incurred).
Indian definition narrower: only loss caused by human conduct — not Act of God or accident.
Examples: insurance (except life), C&F indemnity, director’s indemnity, agency.

80.2.2 Rights of Indemnity-Holder (§ 125)

To recover from the indemnifier (when sued): - All damages he may be compelled to pay. - All costs. - All sums he may have paid in compromise of the suit.

80.3 Contract of Guarantee (§§ 126-147)

80.3.1 Definition (§ 126)

A contract to perform the promise, or discharge the liability, of a third person in case of his default.

Parties to Guarantee

Surety — gives the guarantee.
Principal debtor — for whose default the guarantee is given.
Creditor — to whom the guarantee is given.

80.3.2 Indemnity vs Guarantee — comparison

Indemnity vs Guarantee

Aspect	Indemnity	Guarantee
Parties	Two	Three
Contracts	One	Three (P-C, S-C, P-S implied)
Liability	Primary	Secondary (after default)
Purpose	Reimburse loss	Security
Existence of debt	No prior debt	Prior debt of principal debtor
Type of risk	Contingent	Existing or future liability

80.3.3 Types of Guarantee

Types

Specific — for a single debt or transaction.
Continuing (§ 129) — extends to a series of transactions.
Conditional and Unconditional.
Retrospective and Prospective.
Fidelity — covers employee’s good behaviour.
Bank guarantee — performance / financial.

80.3.4 Rights of Surety

Against principal debtor: subrogation (§ 140), indemnity (§ 145).
Against creditor: securities (§ 141), set-off.
Against co-sureties: equal contribution (§§ 146-147).

80.3.5 Discharge of Surety

Discharge of Surety

Revocation by surety (§ 130) — continuing guarantee, for future transactions.
Death of surety — for future transactions (§ 131).
Variance in terms of contract (§ 133) without surety’s consent.
Release / discharge of principal debtor (§ 134).
Compromise / time given (§ 135).
Creditor’s act impairing surety’s rights (§ 139).
Loss of security (§ 141).

80.4 Bailment (§§ 148-171)

80.4.1 Definition (§ 148)

Delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

Parties

Bailor — delivers goods.
Bailee — receives the goods.

80.4.2 Types of Bailment

Bailment Types

Gratuitous — without reward (e.g. friend’s car borrowed).
Non-gratuitous — for reward (e.g. tailor, jeweller).
For exclusive benefit of bailor / bailee / both.

80.4.3 Duties of Bailor (§§ 150, 158, 159, 164)

Disclose known faults; bear extraordinary expenses; receive back goods.

80.4.4 Duties of Bailee (§§ 151-157)

Take care as a reasonable person; not unauthorised use; not mix goods; return goods on time; return increase / profit.

80.4.5 Rights of Bailee

Lien (§§ 170 particular lien, 171 general lien — bankers, factors, attorneys, wharfingers, policy brokers); deliver to joint bailors; recover loss caused by bailor’s defect.

80.4.6 Finder of Goods (§§ 168-169)

A finder is a bailee and has rights of compensation and lien for trouble & expense; may sell perishable goods.

80.5 Pledge (§§ 172-181)

80.5.1 Definition (§ 172)

Bailment of goods as security for payment of a debt or performance of a promise.

Parties

Pawnor / Pledgor — gives the security.
Pawnee / Pledgee — receives the security.

80.5.2 Bailment vs Pledge

Bailment vs Pledge

Aspect	Bailment	Pledge
Purpose	Safe-keeping, repair, use	Security for debt or promise
Right to sell	Generally no	Yes (after notice, § 176)
Right of use	If specified	Cannot use the goods
Liability	Reasonable care	Same
Lien	Particular / general	Special

80.5.3 Rights of Pawnee

Retain (§ 173); extraordinary expenses (§ 175); sell or sue (§ 176 — reasonable notice required).

80.5.4 Pledge by Non-Owners

By mercantile agent (§ 178), by person in possession under voidable contract (§ 178A), by joint owners, by seller / buyer in possession, by limited interest holders.

80.6 Agency (§§ 182-238)

80.6.1 Definitions

§ 182 — Agent = person employed to do any act for another or to represent another in dealings with third persons. Principal = person for whom the act is done.
§ 183 — Who may employ an agent: any person of age of majority and sound mind.
§ 184 — Who may be an agent: any person (even a minor, but only the principal is bound).

80.6.2 Creation of Agency

Modes of Creating Agency

Express agreement.
Implied agency — by conduct, situation.
Estoppel (§ 237) — apparent or ostensible.
Holding out — special form of estoppel.
Necessity — emergency power.
Ratification (§§ 196-200) — ex post facto approval of acts done on behalf.

80.6.3 Types of Agent

Types of Agents

General — within usual course (manager).
Special — single transaction.
Universal — unlimited authority.
Sub-agent (§ 191).
Substituted agent (§ 194).
Co-agents.
Mercantile — factor, broker, auctioneer, commission agent, del credere.
Non-mercantile — wife, attorney, etc.

80.6.4 Duties of an Agent (§§ 211-218)

To conduct business as per principal’s directions.
Reasonable skill and diligence.
Render accounts.
Communicate in difficulty.
Not to make secret profit.
Not to deal on his own account.
Not to delegate (delegatus non potest delegare) (§ 190).
To pay sums received.
Protect principal’s interest.

80.6.5 Rights of an Agent

Retainer (§ 217); remuneration (§ 219); lien (§ 221); indemnity (§§ 222-223); compensation for injury (§ 225).

80.6.6 Principal’s Liability to Third Parties

Principal’s Liability

Acts within actual authority — bound.
Acts within apparent / ostensible authority — bound (estoppel).
Acts of necessity — bound.
Notice — given to agent is notice to principal (§ 229).

80.6.7 Termination of Agency (§§ 201-210)

By: revocation, renunciation, completion, death/insanity/insolvency of principal or agent, expiry of time, dissolution of company, principal becoming alien enemy, agency coupled with interest is irrevocable (§ 202).

flowchart TB
  S[Special Contracts] --> I[Indemnity §§124-125<br/>2 parties · loss reimbursement]
  S --> G[Guarantee §§126-147<br/>3 parties · secondary liability]
  S --> B[Bailment §§148-171<br/>delivery for purpose · return]
  S --> P[Pledge §§172-181<br/>bailment as security · sell on default]
  S --> A[Agency §§182-238<br/>act on behalf of principal]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

Distractor warning

PYQ trap: Indemnity §124 (two parties); Guarantee §126 (three parties); Bailment §148 + Pledge §172; Agency: agent need not be of age (§184), but principal must be (§183).

80.7 Practice Questions

Q 01§124Easy

Indemnity is defined in:

A§ 124
B§ 126
C§ 148
D§ 182

View solution

Correct Option: A

**§ 124** — indemnity.

Q 02§126Easy

Guarantee is defined in:

A§ 124
B§ 126
C§ 148
D§ 172

View solution

Correct Option: B

**§ 126**.

Q 03PartiesMedium

A contract of guarantee involves:

A2 parties
B3 parties
C4 parties
D5 parties

View solution

Correct Option: B

**3 parties** — surety, PD, creditor.

Q 04BailmentEasy

Bailment is defined in:

A§ 148
B§ 158
C§ 172
D§ 182

View solution

Correct Option: A

**§ 148**.

Q 05PledgeEasy

Pledge is defined in:

A§ 124
B§ 148
C§ 172
D§ 182

View solution

Correct Option: C

**§ 172** — pledge.

Q 06AgentEasy

Agent is defined in:

A§ 180
B§ 182
C§ 184
D§ 196

View solution

Correct Option: B

**§ 182**.

Q 07Minor agentHard

A minor can be:

AA principal
BAn agent (under § 184)
CA surety
DA bailee

View solution

Correct Option: B

**§ 184** — minor can be agent, but is not personally liable.

Q 08ContinuingMedium

Continuing guarantee is defined in:

A§ 126
B§ 129
C§ 130
D§ 133

View solution

Correct Option: B

**§ 129**.

Q 09PawneeMedium

Pawnee can sell pledged goods after:

ADefault by pawnor and reasonable notice
BWithout any notice
CCourt order only
DOnly at auction

View solution

Correct Option: A

**§ 176** — reasonable notice + default.

Q 10FinderMedium

Rights of finder of goods are dealt with in:

A§§ 168-169
B§§ 124-125
C§§ 145-148
D§§ 200-205

View solution

Correct Option: A

**§§ 168-169**.

Q 11IndemnityMedium

Which is NOT a feature of indemnity (Indian)?

ALoss caused by act of God
BLoss by promisor's conduct
CLoss by conduct of third person
DTwo parties

View solution

Correct Option: A

Act of God / accident **not** covered by Indian indemnity definition.

Q 12SubrogationMedium

Surety's right of subrogation is under:

A§ 140
B§ 141
C§ 145
D§ 147

View solution

Correct Option: A

**§ 140** — surety steps into creditor's shoes.

Q 13CareMedium

Bailee's standard of care under § 151:

AInsurer's care
BCare of an ordinary prudent person with his own goods of similar value
CReasonable care only when paid
DNo standard

View solution

Correct Option: B

**§ 151** — uniform standard of "ordinary prudent person".

Q 14AgencyHard

"Agency coupled with interest" is:

ARevocable any time
BIrrevocable (§ 202)
CAutomatically void
DTerminable on death only

View solution

Correct Option: B

**§ 202** — irrevocable agency coupled with interest.

Q 15Sub-agentHard

"Delegatus non potest delegare" is reflected in:

A§ 190 (general rule against sub-delegation)
B§ 173
C§ 184
D§ 148

View solution

Correct Option: A

**§ 190**.

Q 16RatifyMedium

Ratification is dealt with in:

A§§ 196-200
B§§ 124-129
C§§ 148-152
D§§ 168-171

View solution

Correct Option: A

**§§ 196-200** — ratification rules.

Q 17LienHard

General lien of bankers is under:

A§ 170
B§ 171
C§ 176
D§ 178

View solution

Correct Option: B

**§ 171** — bankers, factors, attorneys, wharfingers, policy brokers.

Q 18FidelityMedium

Fidelity guarantee covers:

AEmployee's honesty
BBank loans
CPerformance contracts
DDeath benefits

View solution

Correct Option: A

**Fidelity** — employer indemnified against employee's dishonesty.

Q 19TerminationHard

Agency terminates by all except:

ADeath of principal
BInsolvency of principal
CInsolvency of third party
DCompletion of business

View solution

Correct Option: C

Insolvency of **third party** does not terminate agency.

Q 20MatchMedium

Match parties:

	Contract		Parties
(i)	Indemnity	(a)	Bailor & Bailee
(ii)	Guarantee	(b)	Principal & Agent
(iii)	Bailment	(c)	Indemnifier & Indemnity-holder
(iv)	Agency	(d)	Surety, PD, Creditor

A(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
C(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)
D(i)-(b), (ii)-(a), (iii)-(d), (iv)-(c)

View solution

Correct Option: A

Indemnifier/holder; Surety/PD/Creditor; Bailor/Bailee; Principal/Agent.

80.8 Quick Recall

Quick recall

Indemnity §§ 124-125 — two parties, save from loss by human conduct.
Guarantee §§ 126-147 — three parties, surety secondary liability; continuing g’tee §129; subrogation §140.
Bailment §§ 148-171 — delivery of goods for a purpose; bailee’s care §151; finder §§168-169; lien §170 (particular) / §171 (general — banker, factor, attorney, wharfinger, policy broker).
Pledge §§ 172-181 — bailment as security; sell after notice §176; pledge by non-owners §178/§178A.
Agency §§ 182-238 — agent §182; minor as agent §184; sub-agent §191; substituted §194; ratification §§196-200; agency coupled with interest irrevocable §202.