79 Special Contracts
79.1 Meaning
The Indian Contract Act, 1872 (Sections 124–238) deals with five special contracts — contracts of indemnity, guarantee, bailment, pledge, and agency. These are contracts of a particular kind on which the Act lays down specific rules in addition to the general law of contract (kapoor2023?).
| Special contract | Sections |
|---|---|
| Indemnity | 124–125 |
| Guarantee | 126–147 |
| Bailment | 148–171 |
| Pledge | 172–181 |
| Agency | 182–238 |
79.2 Indemnity (Sections 124–125)
A contract of indemnity (Sec. 124) is “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”. The two parties:
- Indemnifier — the party promising to save.
- Indemnified / Indemnity-holder — the party to be saved.
Examples: insurance contracts (other than life), warranty against defects.
| Right | Working content |
|---|---|
| Recover damages | All damages he is compelled to pay in suits |
| Recover costs | Costs incurred in defending suits |
| Recover sums paid in compromise | Provided the compromise was reasonable |
79.3 Guarantee (Sections 126–147)
A contract of guarantee (Sec. 126) is “a contract to perform the promise, or discharge the liability, of a third person in case of his default”. Three parties:
- Surety — gives the guarantee.
- Principal debtor — primary obligor.
- Creditor — to whom the guarantee is given.
| Dimension | Indemnity | Guarantee |
|---|---|---|
| Number of parties | Two | Three |
| Number of contracts | One | Three |
| Liability | Primary | Secondary (only if principal defaults) |
| Purpose | Saves from loss | Provides security |
| Suit by promisee | Against indemnifier | Surety can sue principal debtor on payment |
| Type | Working content |
|---|---|
| Specific guarantee | For a single transaction |
| Continuing guarantee | Extends over a series of transactions |
| Retrospective / Prospective | For past or future debts |
A continuing guarantee may be revoked by the surety as to future transactions (Sec. 130) or by death of the surety (Sec. 131).
79.4 Rights of the Surety
The surety has rights against the principal debtor (subrogation, indemnity), against the creditor (set-off, securities held by creditor) and against co-sureties (contribution).
79.5 Discharge of Surety
The surety may be discharged by:
- Notice of revocation (Sec. 130).
- Death of surety (Sec. 131).
- Variance in terms of contract without surety’s consent (Sec. 133).
- Release / discharge of principal debtor (Sec. 134).
- Compounding by creditor with principal debtor (Sec. 135).
- Creditor’s acts impairing surety’s eventual remedy (Sec. 139).
- Loss of security (Sec. 141).
79.6 Bailment (Sections 148–171)
A bailment (Sec. 148) is “the 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”.
Two parties:
- Bailor — the person delivering the goods.
- Bailee — the person receiving the goods.
Examples: garments at a dry cleaner, valuables in a bank locker, goods left for repair, hire of a car.
| Essential | Working content |
|---|---|
| Delivery of goods (movable property only) | Actual or constructive |
| For a purpose | Specified, agreed |
| Return / disposal as per directions | Same goods or with the proceeds |
| Basis | Categories |
|---|---|
| Reward | Gratuitous (no payment) vs Non-gratuitous |
| Benefit | Sole benefit of bailor; sole benefit of bailee; mutual benefit |
| Use | For safe-keeping; for use; for sale; for transport |
79.7 Duties and Rights of Bailee and Bailor
| Duty | Section |
|---|---|
| Take reasonable care (Sec. 151) | Care that an ordinary prudent person takes of his own goods |
| Not make unauthorised use (Sec. 153) | Bailment terminable on misuse |
| Not mix bailor’s goods with his own (Sec. 155–157) | Without consent |
| Return after purpose | Sec. 160 |
| Return any accretion / profit (Sec. 163) | E.g., calf of a cow |
The bailee’s lien — Sections 170 (particular lien) and 171 (general lien) — gives the bailee the right to retain goods for his charges.
79.8 Pledge (Sections 172–181)
A pledge is bailment of goods as security for payment of a debt or performance of a promise (Sec. 172). Pledge is therefore a special kind of bailment.
- Pawnor / Pledgor — the party giving security.
- Pawnee / Pledgee — the party receiving security.
| Dimension | Bailment | Pledge |
|---|---|---|
| Purpose | Any purpose | Security for debt |
| Right of sale | No | Yes (after notice) |
| Use | May be allowed | Bailee cannot use pledged goods |
The pledgee has rights to: retain goods (Sec. 173), reimbursement of extraordinary expenses (Sec. 175), and sale of the pledged goods on default after reasonable notice (Sec. 176).
79.9 Agency (Sections 182–238)
An agent (Sec. 182) is “a person employed to do any act for another, or to represent another in dealings with third persons”. The person represented is the principal.
| Test | Working content |
|---|---|
| Agent acts on behalf of the principal | Not in his own right |
| Agent has authority to make the principal’s relations with third parties | Bind the principal |
| Principal is liable for the agent’s acts within authority | Direct or implied |
79.10 Creation of Agency
| Mode | Section | Working content |
|---|---|---|
| By express agreement | 187 | Spoken or written |
| By implied agreement | 187 | From conduct |
| By necessity | — | Emergency action |
| By estoppel / holding out | 237 | Apparent authority |
| By ratification | 196–200 | Subsequent approval of unauthorised act |
| By operation of law | — | Partner is agent of firm |
79.11 Types of Agents
| Type | Working content |
|---|---|
| General agent | Wide authority within usual business |
| Special agent | Authority for a specific transaction |
| Sub-agent (Sec. 191) | Agent of agent — generally only with principal’s consent |
| Substituted agent (Sec. 194) | Appointed by agent for principal |
| Mercantile agents | Brokers, factors, auctioneers, commission agents, del credere agents |
| Non-mercantile agents | Attorneys, insurance agents, tour agents |
79.12 Rights and Duties of Agent and Principal
| Duty | Section |
|---|---|
| Conduct business as per directions | 211 |
| Show reasonable skill and care | 212 |
| Render proper accounts | 213 |
| Communicate with principal | 214 |
| Not to make secret profit | — |
| Not to delegate without authority | 190 |
| Pay sums received for principal | 218 |
The agent has rights to remuneration, retention, lien on principal’s property, indemnity, compensation.
79.13 Termination of Agency
| Mode | Section |
|---|---|
| Revocation by principal | 203 |
| Renunciation by agent | 206 |
| Completion of business | 201 |
| Death / insanity / insolvency | 201 |
| Expiry of time | 201 |
| Destruction of subject matter | 201 |
| Dissolution of company | 201 |
79.14 Exam-Pattern MCQs
Q1. Which of the following is not a special contract under the Indian Contract Act?
A. Indemnity B. Guarantee C. Sale D. Agency
Answer: C. Sale of Goods is governed by a separate Act (1930), not by the special-contracts part of the ICA.
Q2. Match each special contract with its Section range:
| Contract | Sections | ||
|---|---|---|---|
| (i) | Indemnity | (a) | 148–171 |
| (ii) | Guarantee | (b) | 124–125 |
| (iii) | Bailment | (c) | 182–238 |
| (iv) | Agency | (d) | 126–147 |
A. (i)-(b), (ii)-(d), (iii)-(a), (iv)-(c) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
Answer: A.
Q3. Match each contract with the parties:
| Contract | Parties | ||
|---|---|---|---|
| (i) | Indemnity | (a) | Bailor and Bailee |
| (ii) | Guarantee | (b) | Pawnor and Pawnee |
| (iii) | Bailment | (c) | Indemnifier and Indemnified |
| (iv) | Pledge | (d) | Surety, Principal Debtor, Creditor |
A. (i)-(c), (ii)-(d), (iii)-(a), (iv)-(b) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
Answer: A.
Q4. Which of the following best distinguishes guarantee from indemnity?
A. Guarantee involves only two parties; indemnity involves three B. Guarantee involves three parties (surety, principal debtor, creditor); indemnity involves two C. They are exact synonyms D. Indemnity always requires written form; guarantee never does
Answer: B. The structural difference: guarantee = 3 parties; indemnity = 2 parties.
Q5. A bailee’s lien is the right to:
A. Sell the bailor’s goods on default B. Use the bailor’s goods personally C. Retain the bailor’s goods until charges are paid D. Take possession of bailor’s other property
Answer: C. The bailee’s lien (Sec. 170, 171) is the right to retain until charges are paid.
Q6. Match each pledge concept with its Section:
| Concept | Section | ||
|---|---|---|---|
| (i) | Definition of pledge | (a) | 176 |
| (ii) | Right of pledgee to retain | (b) | 173 |
| (iii) | Right of pledgee to sale on default | (c) | 172 |
A. (i)-(c), (ii)-(b), (iii)-(a) B. (i)-(a), (ii)-(b), (iii)-(c) C. (i)-(b), (ii)-(c), (iii)-(a) D. (i)-(c), (ii)-(a), (iii)-(b)
Answer: A.
Q7. Match each mode of creating agency with its description:
| Mode | Description | ||
|---|---|---|---|
| (i) | By express agreement | (a) | Subsequent approval of unauthorised act |
| (ii) | By implied agreement | (b) | Spoken or written |
| (iii) | By ratification | (c) | From conduct |
| (iv) | By necessity | (d) | Emergency action |
A. (i)-(b), (ii)-(c), (iii)-(a), (iv)-(d) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
Answer: A.
Q8. Match each agent type with its content:
| Agent | Content | ||
|---|---|---|---|
| (i) | General agent | (a) | Authority for a specific transaction |
| (ii) | Special agent | (b) | Wide authority within usual business |
| (iii) | Sub-agent | (c) | Appointed by agent for principal |
| (iv) | Substituted agent | (d) | Agent of an agent |
A. (i)-(b), (ii)-(a), (iii)-(d), (iv)-(c) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(c), (iii)-(a), (iv)-(b)
Answer: A.
- Special contracts (ICA 1872): Indemnity 124-125, Guarantee 126-147, Bailment 148-171, Pledge 172-181, Agency 182-238.
- Indemnity — 2 parties (indemnifier + indemnified); primary liability.
- Guarantee — 3 parties (surety, principal debtor, creditor); secondary liability.
- Continuing guarantee revocable as to future transactions.
- Bailment — delivery of goods for a purpose; bailor and bailee. Bailee’s duty: reasonable care (Sec. 151). Bailee’s lien (Sec. 170, 171).
- Pledge = bailment as security for debt; pawnor and pawnee. Pledgee may sell on default after notice (Sec. 176).
- Agency — agent acts on principal’s behalf with third parties.
- Modes of creation: express, implied, necessity, estoppel, ratification (Sec. 196-200), operation of law.
- Types of agent: general, special, sub-agent (Sec. 191), substituted agent (Sec. 194), mercantile (broker, factor, auctioneer, del credere), non-mercantile.
- Termination: revocation (203), renunciation (206), completion / death / insanity / insolvency (201).