BBA Business Low Contracts of Indemenity Notes

BBA Business Low Contracts of Indemenity Notes


BBA Business Low Contracts of Indemenity Notes:-  All BBA 1st semester students’s we are provide the study material and r of BBA . and in this article you can find few year notes. BBA Business Low notes 2020 today our team presented BBA Business Low previous year question paper for you practise. and special links related to the BBA Business Low and all subject question paper and study material. we provided mock paper, question paper, simple paper, unsold paper last five year question paper.




Contracts of Indemnity

A contract of indemnity is a contingent contract. It 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 or by accident. The person who undertakes to indemnify or make good the loss is called the “indemnifier” and whose loss is made good is called the “indemnified” or “indemnity holder”.

A contracts to indemnify B for any consequences of any proceedings which C may take against B in respect of a certain sum of Rs.200. This is a contract of indemnity. If B is ordered   to pay to C Rs.200, A shall be required to pay this amount to B.

A promise to indemnify may be express or implied. The illustration given above is an example of an express promise to indemnify. The following is an example of an implied promise to indemnify:

A broker forged the signature of the holder of government promissory note and endorsed   it to the Bank of India. The bank got the note renewed from the government. The holder sued  the government and recovered damages. The government sued the bank for indemnity. The suit was decreed. There was an implied promise by the bank that the note was genuine.

As we shall study that shortly, in a contract of guarantee there is an implied promise by the principal debtor to indemnify his agent for any expenses incurred in the performance of all lawful act done by the agent while acting for the principal. Similarly, a contract of insurance is a contract of indemnity. In short, the indemnity-holder is entitled to recover from the indemnifier all damages paid by him and all costs incurred by him and all other sums paid by him on account of the indemnifier.

Rights of Indemnity holder when sued

According to sec. 125 an indemnity holder is entitled to recover from the promisor :

  • all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify
  • all costs which he may be compelled to pay in bringing or defending such suits. But the indemnified should have acted as any prudent man would act under similar circumstances in his own case, or with the authority of the indemnifier;
  • all sums which he may have paid under the terms of any compromise of any such suit. The compromise should not be contrary to the orders of the indemnifier and should be prudent or authorised by the

Rights of indemnifier

BBA Business Low Contracts of Indemenity Notes :-

The Indian Contract Act does not speak about the rights of indemnifier in a contract of indemnity. But on the basis of the authority of English Law, it may be stated that the rights of  the indemnifier are similar to the rights of a surety under section 141. These rights have been discussed later on in this lesson itself.

Business Low Notes Time of commencement of the liability of the indemnifier

No mention is found regarding the time of the commencement of the indemnifier’s liability in the Indian contract Act. In this connection various High Courts have held different views. It has been observed by certain High Courts that the indemnifier is not liable until the indemnified has incurred the actual loss, where as other High Courts have held that the indemnified can force the indemnifier to make good his loss even before he discharges his liability. This position has been supported by Buckley. L.J. According to him, “Indemnity is not given by repayment after payment. Indemnity requires that the party indemnified shall never be called upon to pay.” This view is based on equitable principles, as such it is followed by the courts. In an English case,      it has been observed, “. to indemnify does not merely mean to re-imburse in respect of moneys

paid, but to serve from loss in respect of liability against which the indemnity has been given

… if it be held that payment is a condition precedent to recovery, the contract may be of little value to the person to be indemnified, who may be unable to meet the claim in the first instance.”

On similar lines it was observed by Justice Chagla that “If the indemnified had incurred     a liability and that liability is absolute, he is entitled to call upon the indemnifier to same him from that liability and pay it off.” [Gajanan Moreshwar Vs. Moreshwar Madan, A.I.R. (1942) Bombay 302].

Contract of Guarantee

BBA Business Low Contracts of Indemenity Notes

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 for whom the guarantee is given is called the “principal debtor”, and persons to whom the guarantee is called the “creditor”.

A lends Rs. 1,000 to B and C stands surety for the payment of the debt. This is a contract  of guarantee. If B does not pay the debt when it becomes due, then C shall have to pay the amount to A.

A contract of guarantee may be either oral or written. It should satisfy all the essentials of   a valid contract. However, two points should be noted. In a contract of guarantee, the principal debtor may be a minor, although the surety must be a major. Secondly, the consideration received by the principal debtor is taken to be a sufficient consideration for surety’s promise.

Fiduciary Relationship

BBA Business Low Contracts of Indemenity Notes

In a contract of insurance utmost good faith is essential, but a contract of guarantee is not   a contract of utmost good faith in the sense that there is an obligation on the part of the creditor to disclose to the surety every circumstance within his knowledge material to the surety to know. Still the surety is entitled to know so much as will tell him what is the transaction for which he  is making himself answerable. He will be discharged, if there is either active misrepresentation of the matter by the creditor, or silence amounting to misrepresentation. A situation of this kind exists where an employer continues to employ the principal debtor, but fails to tell the surety that the employee, whose conduct has been guaranteed by the surety is a defaulter, thus representing him to be honest, therefore, a contract of guarantee may not be a contract of utmost good faith, but the suretyship relation is that of trust and confidence, and the validity of the contract depends upon good faith on the part of the creditor. A creditor must disclose these facts which under the circumstances the surety would expect not to exist, for omission to state that such facts do not exist is an implied representation that they do exist. A creditor in possession of unusual and important facts must impart those facts to the surety at the time the agreement is made. It is, however, not every disclosure that a surety can require. The rule is that the creditor need not offer information if the surety has equal opportunity to discover such facts.

Difference between a contract of Indemnity and Guarantee

  1. In a contract of indemnity, the promisor undertakes an independent liability, in a contract of guarantee the liability of the surety is secondary, so that he is liable to pay only if the principal debtor fails to
  2. In a contract of indemnity there are two parties-the indemnifier and the indemnity holder. In a contract of guarantee, there are three parties the creditor, the principal debtor and the
  3. In a contract of guarantee, there is an existing debt or duty, the performance of which is guaranteed by the In a contract of indemnity, the liability of the indemnifier arises only on the happening of a contingency.
  4. In a contract of guarantee, the surety, after he has discharged the debt owing to the creditor, can proceed against the principal In a contract of indemnity the loss falls on the indemnifier except in certain special cases.

Nature of surety’s Liability. The liability of a surety is secondary. The surety is liable only on default of the principal debtor. Therefore, unless the principal debtor makes a default the surety cannot be called upon to pay. But the moment the principal debtor defaults hi the payment, then immediately, the surety becomes liable, as if he were the principal debtor. Therefore, as soon as the time for payment has come and the principal debtor does not, or is unable to pay, the surety becomes liable to pay. The creditor may file a suit against the surety without suing the principal debtor.

Once the liability of the surety arises, it is co-extensive with that of the principal debtor,    ft will be neither more nor less, although by a special contract it may be made less than that of the principal debtor but never greater. If the principal debtor is a minor and, therefore, not liable to pay back the debt to the creditor, the surety will be liable to pay.

Kinds of Guarantee :- A guarantee may be simple or specific or it may be continuing. A guarantee covering a single debt is called a simple specific guarantee, and comes to an end when the debt guaranteed has been paid.

A lends Rs.5000 to B and C promises to A that if B does not pay the money,  C will pay    it. This is a specific guarantee.

A continuing guarantee extends to a series of distinct and separate transactions, it is a continuing guarantee where A guarantees to B for 12 months the due payments of bill of exchange of C upto Rs. 10,000 if B discounts them during the period and upto the said amount, in case      C fails to pay. Similarly A guarantees payment to B, a tea dealer, to the amount of Rs.5,000, for any tea he may from time to time supply to C.

Revocation of Continuing Guarantee: A continuing guarantee may be revoked by the surety as to future transactions, by notice to the creditor; but the surety remains liable for all transactions previous to the notice of revocation.

  1. guarantees to B the payment by C of all sums lent by B from time to time to C during the period of 12 months upto Rs. 10,000. This is a continuing guarantee. If during the period of six months B had lent to C Rs.6,000 and A revokes the guarantee, then A will be discharged of

all liability to B for any subsequent loan. But A is liable to B for the payment of Rs.6,000 already advanced, if .C fails to pay.

The death of the surety operates, in the absence of a contract to the contrary, as a revocation of a continuing guarantee, as regards future transactions. But the estate of the surety will be liable for all transactions entered into prior to the death of the surely.


Contract  of Bailment

BBA Business Low Contracts of Indemenity Notes :-

Definition of Bailment: Bailment is the delivery of goods by on,- person called the bailor  to another, called the bailee, for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them (i.e., the bailor).

To constitute a bailment :

  • goods are delivered by one person to another;
  • the goods are delivered for some purpose;
  • the goods are to be returned to the bailor or disposed of according to his direction when the purpose is


  • A lends a book for one week to
  • A delivers a watch to B for
  • A gives his watch to B as security for a
  • A gives a piece of cloth to B, a tailor for making into a
  • A delivers his goods to a carrier to be conveyed from one place to
  • A gives to B some furniture on

A bailment may be gratuitous, i.e., without any charge, or it may be for reward i.e., non gratuitous. Loan of an article and articles kept in safe custody without charge are two examples of gratuitous bailment, the parting with the possession of goods by the bailor is sufficient consideration. In a bailment for reward the consideration is the payment either by the bailor or the bailee. For example when A gives his car for repair to workshop, or when A gives his car    on hire to B. In the first case consideration is paid by bailor and in second case by the bailee.

Duties of Bailee:

BBA Business Low Contracts of Indemenity Notes :-

  1. The bailee must take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods. As long as the baile takes reasonable care that a man of average prudence would take of his own goods, he is not liable for any loss, damage, or destruction of A deposits his goods in B’s warehouse: The warehouse is properly locked and watched. However, the goods are stolen. B is not liable for the loss.
  1. The bailee must not make any unauthorised use of the goods bailed. If he makes an unauthorised use of the goods, he will be liable for all damages to the goods, and the bailor may terminate the A lends a horse to B for his own riding only. B allows C to ride the horse. C rides with  care, but the horse accidentally falls and injured. B is liable to compensate A for the injury to   the horse.
  1. The bailee must keep the goods bailed to him separate from his own goods, and must not mix them without the consent of the bailor : A deposits, a tin of pure ghee with B who mixes vegetable ghee with it. B is liable to pay the price of pure ghee to A.
  1. The bailee must return the goods to the bailor, or deliver them according to his directions, with the time for which they were bailed [and expired, or the purpose for which they were given is accomplished. If the bailee does not return or deliver as directed by the bailor, or tender the goods at the proper time, he becomes liable for any loss, destruction or deterioration of goods.even when he is not negligent, or has taken reasonable A delivered gold to B for turning it into ornament and B promised to complete the work within a fortnight and hand over the ornaments to A. A pressed for the delivery of the ornaments, but B failed to do so, although a month had elapsed. In the mean time, B’s  shop was burgled.    B was held liable to pay the price, although he was not negligent in keeping the goods.
  1. In the absence of any contract to the contrary, the bailee must deliver to the bailor any increase or profit which may have accrued form the goods

A leaves a cow in the custody of B to be taken care of. The cow has a calf, B is bound       to deliver the cow as well as the calf to A.

BBA Business Low Contracts of Indemenity Notes :-

Duties of Bailor :

  1. The bailor must disclose all the faults in the goods bailed in so far as they are known to him. If he fails to do that, he will be liable to pay damages to the bailee which the latter may have suffered on account of the faults in the

A lends a horse, which he knows to be vicious, to B, without disclosing this fact. The horse runs away and B is injured, A is responsible to B for the damages sustained.

  1. If the goods are bailed for hire, the bailor is liable to pay damages, even if he did not know of the faults in the goods

A hires a carriage of B. The carriage is unsafe, though B is not aware of it. A is injured.

B is responsible to A for the injury.

  1. In a bailment without remuneration (gratuitous bailment) the bailor must pay to the bailee all the necessary expenses incurred by him in connection with the

A is going on a holiday for a fortnight. He requests B to take care of his dog in his absence, and B agreed to do so. A must pay to B all the expenses incurred by B on the dog.

  1. The bailor is bound to indemnify the bailee for any cost or loss which bailee may incur because of the defective title of the bailee to the goods

A gives B’s car to C for use without B’s knowledge or permission. B sues C and receives compensation. C is entitled to recover his losses from A.

Business Low Agency Notes

Definition and General Rules: An “Agent” is a person employed to do any act for another or to represent another in dealings with a third person.

The person for whom such act is done, or who is so represented, is called the “Principal”. The appointment of such a person to act on his behalf results in the creation of agency. P appoints A to sell bales of cotton on his behalf. P is the principal and A is his agent.

The function of an agent is to bring about contractual relations between the principal and third parties. The agent does not make contracts on his own behalf, but acts only as a connecting link between his principal and third parties. Therefore, the act of the agent (within the scope of the authority or instruction) binds the principal as if the principal has done them himself. In other words, the acts of the agent are the acts of the principal.

P gives A, a minor, a ring worth Rs.500 and asks him not to sell it on credit and not for   less than Rs.590. A sells the ring to B on credit for Rs.400. The transaction binds P snd B, but P has no right to claim damages as against A for his misconduct, as A is a minor. (If A had been major, P could have recovered damages for his misconduct).

Kinds of Agent

The relationship between the principal and agent and the extent of the authority of the agent are matters to be determined by agreement between the parties.

Accordingly, an agent may be A Special or General. A special agent is appointed for a specific purpose or occasion to which his authority is restricted. He has authority only to do that particular act or acts in that particular transaction. If he does anything outside that particular authority, the principal is not liable.

A general agent is appointed to do anything within the general authority given by the principal. He acts in all transactions relating to the specified trade or matter. Third parties may assume that such an agent has power to do all that is usual for a general agent to do in the business involved. His acts are binding on the principal if they are within the scope of his apparent authority, although they may be outside the scope of his actual authority. Therefore, a private limitation of the apparent authority is not binding unless it is known by the other party   to the contract. As examples of the two kinds of agents, it may be pointed out that the managing director of a company is the general agent of the company, and a man sent by a friend to bid from him at an auction sale is the.special agent of his friend only Tor that purpose. Agents may also be classified as Mercantile Agents and Non-Mercantile Agents. A mercantile agent is an agent who, in the ordinary course of his business as agent, buys and sells goods on behalf of the principle.

Mercantile Agents

Factor: A factor is a mercantile agent with whom goods are kept for sale. He usually sells goods in his own name. He has a general lien on the goods for moneys due to him as agent. He has also an insurable interest in the goods and can insure them.

Broker: A broker is one who makes bargains for another and receives brokerage commission for doing so. The broker does not keep the goods of the principal in his possession. His duties  are at an end as soon as the principal and the third party are brought together.

Commission Agent: A commission agent is one who secures buyers for a seller of goods and sellers for a buyer of .goods, in return for a commission. He may have possession of the goods or not. He may sell or buy goods in his own name.

Del Credere Agent: A del credere agent is an agent who, for an extra remuneration guarantees to his principal that the third parties with whom he enters into contracts shall perform their obligations. If the other party fails to pay the price of goods or otherwise causes damages to the principal, the del credere agent must pay compensation to the principal. Del credere commission is in addition to his normal commission.


Auctioneer: An auctioneer is an agent who sells goods by public auction, i.e., to the highest bidder in public competition. He has no authority to warrant the goods sold and can deliver the goods on receipt of the price. As he has the possession of the goods he must arrange for their proper storage and is responsible to the owner for any damage caused through his negligence.  He enjoys a particular lien on the goods for his charges.

Non-Mercantile Agents

Non-mercantile agents are: (1) Estate Agents, who are employed to negotiate the sale and purchase; or lease of immovable .property, or (2) House Agents, who are similarly engaged with respect to house, shops, etc., or (3) Law Agents, whose business is to look after the legal affair  of their principals. In addition, there are attorneys, who act on behalf of their clients. Wife is also under certain circumstances, her husband’s agent.

Wife as Agent: Where the husband has expressly authorised his wife to borrow money or pledge his credit; the husband is liable. But the question becomes difficult when the wife is regarded to have implied authority as her husband’s agent. The position may be stated as follows

Where the husband and wife are living together, the wife is presumed to have implied authority to pledge the husband’s credit for necessities. But the husband can escape liability if he can prove that (i) he has expressly forbidden his wife from borrowing money or buying on credit; (ii) the goods purchased were not necessities, (in) he has allowed sufficient funds for purchasing the articles she needed to the knowledge of the tradesman; or (iv) the tradesman has been expressly told not to give credit to the wife.

Where the wife lives apart from the husband through no fault of hers, and is not provided with funds for her maintenance, she can bind the husband for necessaries. But if the wife lives apart of her own will without justification, she is not her husband’s agent and cannot bind him even for necessaries.

Duties of an Agent: The duties of an agent are :

  1. To carry out the work according to the instructions of the principal. If he does not act within the scope of his authority according to the principal’s instructions, he will be liable for any
  2. To follow the customs of trade in the absence of
  3. To carry out the work with reasonable care, skill and diligence, where, by the

of his profession, the agent purports to have special skill, then he must show as much skill as would be expected of men in that profession.

  1. In case of the difficulty the agent must communicate with the principal and get his instructions.
  2. As the agent acts on behalf of his principal all money received by him on behalf of the principal must be paid over to the principal. The agent is not to make any profit out of his agency except the receipt of
  3. It is the duty of the agent to keep and render true and correct account of all his transactions and to be always ready to produce them to his Principle.
  4. An agent must not deal on his own account in the business of the In other words, he must not become principal as against his employer. For example, if the principal asks his agent to buy for him some shares of a company and the agent sells his own shares without informing, the latter can rescind the contract.
  5. The agent must not disclose confidential information or documents entrusted to him by the Principle.
  6. Subject to the five exceptions noted above (delegation of authority) an agent must not delegate his authority to another person, but perform the work himself. Duties of Principal: The duties of the principal are :
  7. To pay the agent the commission or the other remuneration agreed between them.
  8. To indemnify the agent for acts lawfully done and liabilities incurred in the course of the But the agent loses his right to an indemnity if he acts beyond his authority or negligently performs his duty.
  9. To make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill.

Business Low Rights of Principal Notes

The principal can enforce all the duties of the agent which are indirectly the rights of the principal when an agent fails in his duties towards the principal, then he has the following remedies against an agent :

  1. To recover damages-If principal suffers any loss due to disregard by the agent of the directions given by him or by not following the customs of trade in the absence of directions, or where he suffers due to lack of requisite skill, care or diligence on the part of the agent, he can recover damages accruing as a result from the agent.
  2. To recover secret profits-He can recover from the agent any secret profits made by the agent out of the agency and can resist agent’s right to any commission in respect of that transaction.
  3. To resist agent’s claim for indemnity-Where he can show that the agent has acted as   a principal himself, he can resist the agent’s claim for indemnity against liability incurred by him in such a transaction.

BBA Business Low Contracts of Indemenity Notes

BBA Business Low Question Paper 2018-2020


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