Author:- Tanvi Chopra
Section 10 of the Indian Contract Act, 1872 defines what agreements are contracts. A contract is an agreement which is made by the free consent of the parties who are competent to contract, with a lawful consideration and a lawful object.
The agreement, as defined by the provisions of the contract, is a promise or a set of promises which forms a lawful consideration. Free consent, lawful consideration and competency to contract are essentials elements that need to be present for a contract to be valid.
A contract can be valid, void or voidable. If a contract does not have a valid consideration or the parties are incompetent to contract, the contract becomes void ab initio, i.e., void since the very beginning. On the other hand, if a contract has been entered without the free consent of a party, the contract is voidable at the option of the party whose consent was not free.
There are certain contracts discussed in the Indian Contract Act which have some specific features and are distinct from the standard contracts. These contracts are called specific contracts.
There are broadly five types of specific contracts that are discussed in the act and all of them have certain distinct specific features or qualities which categorises them into different types.
Types of Specific Contracts in the Indian Contract Act, 1872
Sections 124- 238 of the Indian Contract Act, 1872 deal with specific contracts. There are mainly five types of specific contracts provided in the Contract Act.
These are: Indemnity, Guarantee, Bailment, Pledge and Agency.
In general terms, the term indemnity means protecting someone from any harm. The contract of indemnity is defined in Section 124 of ICA. As per the definition, a contract of indemnity is a contract where one party promises to save the other from loss caused to him by the conduct of the promisor itself or by the conduct of any other person.
The person who promises to save i.e., the person who gives the indemnity is called the indemnifier and the person to whom the indemnity is given is called the indemnified. It is a separate contract independent from the main contract. The loss should be caused by human interference only and this section does not include loss caused by accident, cattle, an act of god, etc.
This view was also upheld by the courts in the case of Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri. It was also held in this case that if the liability of the indemnity holder has become absolute, he can be indemnified by his indemnifier to pay off the claim for him.
Section 125 of the Act provides certain rights to the indemnity holder. It includes that the promisee can recover from the promisor all damages which he may compelled to pay, the costs he has to pay to bring or defend a suit without contravening the orders of the promisor and all the sums which he might have had to pay in compromise of any such suit. It was held in the case of Nalappa Reddi v. Virdhachala Reddy, that the right to recover all damages arises as soon as the decree is passed against the promisee.
A contract of guarantee is a contract to perform a promise or discharge the liability of a third person in case of the person’s default. The person who gives the guarantee is called the guarantor or the surety, the person to whom the guarantee is given is called the creditor and the person on whose default the guarantee is given is called the principal debtor. There is a condition attached to this contract that the surety will perform the performance only on the default of the debtor and not otherwise.
A contract of guarantee is a tripartite guarantee which means that is a contract between three parties i.e., the principal debtor, creditor and the surety. A contract of guarantee should have a lawful consideration, otherwise, it is a void contract. This view was taken by the courts in the case of Janaki Paul v. Dhokar Mall Kidarbux.
Section 127 deals with the consideration for guarantee. It states that anything done or any promise made for the benefit of the debtor would constitute sufficient consideration for the contract of guarantee. In the case of SICOM Ltd. v. Padmashri Mahipatrai Shah, it was established that past consideration would be a valid consideration for the purposes of the contract of guarantee. Section 128 deals with the extent of surety’s liability and states that the surety’s liability would be co-extensive with that of the principal debtor’s liability and nothing exceeding that.
It means that the surety would be liable to pay a maximum of only that amount which the debtor had to pay to the creditor and not more. This view was upheld by the courts in the case of Maharaja of Benaras v. Har Narain Singh. A suit can be initiated against the debtor alone and even against the surety alone. These contentions have been upheld by the courts in cases of Union Bank of India v. Noor Dairy Farms and N. Narasimahaiah v. Karnataka State Financial Corporation respectively. There are also various rights provided to the surety and the creditor in the contract of guarantee by the provisions of ICA.
Bailment is a type of contract where some goods are delivered by one person to another for a specific purpose and when the purpose is accomplishment, the goods are either returned or are disposed off according to the directions of the person delivering them. The person delivering the goods is known as ‘bailor’ and the person to whom the goods are delivered are known as ‘bailee’.
One of the major elements for a contract of bailment to be valid is the delivery of goods to the possession of another. The delivery can be either actual or constructive. The courts held in the case of Morvi Mercantile Bank v. Union of India that delivery of railway receipt amounts to delivery of goods, showing that constructive delivery is within the ambit of bailment. Bailment is different from sale, barter or exchange as in these transactions, the ownership is transferred whereas in bailment only the possession of goods is transferred from bailor to bailee.
In Gangaram v. Crown, the apex court held that the delivery of goods should be made for a specific purpose and after that purpose is accomplished, the goods should be returned back to the bailor or disposed of according to his directions. Delivery of goods without any specific purpose would not be a valid contract of bailment. It is the duty of a gratuitous bailor to disclose the faults in the goods being delivered if there are any. If the goods are bailed for hire, then it is immaterial; whether or not the bailor knew about the defects or not, he would be held responsible.
Sections 151- 161 talk about the duties of a bailee, which includes taking reasonable care of the goods, not mixing the products, not to make authorise the use of the goods, etc. The provisions of ICA also give certain rights to the bailee which also includes a right of lien among other basic rights. According to section 168, the finder of goods is also in the position of a bailee and is bound to take reasonable care of the goods he found.
Pledge is a special kind of bailment. It is the bailment of goods as security for payment of a debt or performance of a promise, as defined in section 172 of the Indian Contract Act. the bailor here is called the pawnor and the bailee is called the pawnee. Pawnee has a similar set of rights and duties as that of the bailee. In a contract of pledge, the pawnee has a special interest in the property which has been pledged. Apart from owners, agents or authorised servants, mercantile agents and a person in possession of a voidable contract can also pledge.
In the case of Philips v. Brooks, it was held that a pledge is valid if a person has obtained possession under a voidable contract on the condition that the contract has not been rescinded at the time of the pledge and the pledgee has acted in good faith. But if the contract under which the possession is obtained is void, then a valid pledge cannot be created. This principle was established by the courts in Central National Bank Ltd. v. United Industrial bank Ltd.
An agent and a principal are defined in section 182 of the Indian Contract Act. an agent is a person who has been employed to act on behalf of the other. The other person on whose behalf the agent acts upon is the principal. Agency is the relationship shared between the agent and the principal. One of the basic rules governing the contract of agency is that the principal would be bound by the acts of the agent which are done in the course of his employment. A point to be noted is that only a person who has attained majority and is of sound mind can only appoint an agent.
It has been held in the case of Shephard v. Cartwright, that an infant can not appoint an agent for him neither by means of authority nor by any other means. Unlike other contracts, consideration is not essential in the contract of agency. The Supreme Court in the case of Lakshminarayan Ram Gopal & Sons v. Government of Hyderabad made the distinction between an agent and a servant. An agent is authorised to enter into contracts on behalf of the principal but there is no such power given to the servants.
The agents cannot delegate the work they have been employed to do to any other person unless the ordinary custom of trade allows a sub-agent to be hired or if the principal has consented to hire a sub-agent. There have also been certain rights and duties assigned to the agent and principal by the provisions of the contract act.
The above mentioned are the specific contracts that the Indian Law provides for. These contracts are interpreted widely enough and are different concepts in themselves altogether. While all of these have the essential elements of a valid contract, they also have some additional features which make the contracts different from the regular/ standard contracts provided in the Indian Contract Act.
Contract law is such an emerging field of law that the courts have a pile of similar cases to be dealt with. In the authors’ opinion, the applicability of these specific contracts can be best understood by the interpretations of the courts in different judgements.
Author Tanvi Chopra is a second-year law student from Bennett University, Greater Noida.