Kanhaiya Lal Aggarwal v. Union of India 2002

The Indian Contract Act is a part of mercantile law Here you can find the quick revision of Indian Contract law in the simplest language which is easy to understand and help to keep remembering for a longer time.

Indian Contract Act

the Indian Contract Act
the Indian Contract Act
  • Got assent on 25th April 1872.
  • Come into force 1st September 1872
  • to whole India.

Section (2) of The Indian Contract Act, 1872- definition and Interpreted clause-

  • SECTION(2a)- Offer/Proposal

When a person shows a willingness to do or abstain from doing anything, to obtain the assent or other such act of abstinence- this is called the proposal is being made

  • SECTION (2b)- Promise

When the proposal i.e SECTION (2a) is accepted or given his assent, become Promise.

  • SECTION (2c)- Promisor or Promisee

The person who makes the promise is called Promisor, and the person accepting the proposal is called the “Promisee”

  • SECTION (2d)- Consideration

When the promise or any other person has done or abstained from doing, such act or abstinence or promise at the desire of the promisor is called a consideration for the promise.

  • SECTION (2e)- Agreement

Every promise with consideration is an agreement.

  • SECTION (2f)- Reciprocal Promise

such situation where both the promisor and promisee make consideration or part of the consideration for each other, called reciprocal promises.

  • SECTION (2g)- Void agreement

such a situation, which is not enforceable by law is said to be a void agreement.

  • SECTION(2h)- Contract

an agreement that is enforceable by law

  • SECTION (2i)- Voidable Contract

such agreement which is enforceable by law at the option of party-1,  but not at the option of the other party-2, is called a voidable contract.

  • SECTION (2j)- Void Contract

such a contract that ceases to be enforceable by law becomes void when it ceases to be enforceable.


Section 2(a)+ Acceptance = section 2(e), law may be enforceable.

section 2(e) + section 2(d)= section 2(h).—— law must be enforceable.

Chapter I [section 3 to 9]

Chapter II [ Section 10 to 30]

Chapter III [ Section 31 to 36] Contingent Contracts

Chapter IV [ Section 37 to 67] the Performance of Contracts

Chapter V [ Section 68 to 72] Certain Relations Resembling those created by Contract

Chapter VI [ Section 73 to 75] The Consequences of Breach of Contract

Chapter VII —- sale of good — REPEALED

Chapter VIII [ Section 124 to 147] Indemnity and Guarantee

Chapter IX [ Section 148 to 181] Bailment

Chapter X [ Section 182 to 238] Agency


here we discussed important and necessary sections which are useful for all kinds of Examination and widely used in our daily life.

Section 124 to 125:- Contract of Indemnity

Section 126 to 147:- Contract of Guarantee

Section 148 to 181:- Contract of Bailment

Section 172 to 181:- Contract of Pledge

Section 182 to 238:- Contract of Agency

Chapter VIII

Section 124 in The Indian Contract Act, 1872

124.  Such a contract where one party promises to save the other from the loss caused to him by the conduct of the promisor himself, or by the conduct of any other party, is called a contract of Indemnity.

Parties Involved

  1. the promisor or indemnifier– who promise to pay
  2. the promisee or indemnity-holder or the indemnified-whose loss is covered or who is compensated.

For example – a car owner meets an accident of his car then the loss is recovered by the indemnifier.

Essential Points to remember

  1. there must be a valid contract (section 10 of the Indian Contract act 1872)
  2. loss or protection of loss and damages must be there
  3. Indemnifier is liable for the loss
  4. the loss is caused either by The promisor or any other persons

from the above discussion, this type of contract is indeed contingent as it is only enforceable when the loss arises.

What is the right of the Indemnity-holder?

  1. as per Section 125(1) of the Indian contract act it is the right of recovering Damages paid in a suit- > Indemnity- holder has the right to recover from Indemnifier all damages which he may be compelled to pay in any suit in respect of any matter to which the contract of indemnity applies.
  2. As per Sect. 125(2) of the Indian Contract Act it the right of recovering costs incurred in defending a suit– > all costs, which he may be compelled to pay in any suit if in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit.
  3. As per sect. 125(3) of the Indian contract act it is the right of recovering sums paid under the compromise of any suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

Note– Indemnifier is not liable to grant pay until indemnifier-holder has suffered a loss.

Important ingredients

Principal debtor– who takes the loan or is liable to pay

creditor– who gives a loan or receive the payment

Surety/Guarantor– who gives the guarantee to pay.


Contract of Guarantee

Guarantee means assurance/trust that is a legal contract will be duly enforced.

Mostly loans, goods, or employment ask Contracts of Guarantee.


Section 126 in The Indian Contract Act, 1872

A contract to perform the promise or discharge the liability of the defaulting party in case he fails to fulfill his promise.

what is a Bank Guarantee?

The guarantee made to the lender institutions ensures that the liabilities of a debtor will be met, if the debtor is unable to pay the bank will settle down the debt.

Types of Bank Guarantee

  1. Financial Guarantee- on the behalf of the customers, instead of the customer’s requirement to deposit cash security or earnest money
  2. Performance Guarantee- This type of Guarantees is meant for the performance of contracts entered into by the customers.
  3. Deferred Payment Guarantee- when the bank’s customer purchases some machine etc. on a deferred payment basis and that payment is guaranteed by the bank.

What is a specific Guarantee?

when a guarantee is given in respect of a single debt or specific transaction and is to come to end when the guaranteed debt is paid or the promised duly fulfilled.

for example  – S is a bookseller who supplies a set of books to P, under the contract that if P does not pay for the books, his friend K would make the Payment. This is a specific Guarantee and K’s liability would come to end, the moment the price of the books is paid to S.

What is Continuing Guarantee?

A guarantee which extends to a series of transactions [ section 129 of the Indian contract act ]

For Example:- on the recommendation of M, S who is a wealthy landlord employs P as his estate manager. It was the duty of P to collect rent every month from the tenants of S and remit the same to S before the 15th  of each month. M, guarantee this arrangement and promises to make good any default made by P. This is a Contract of continuing guarantee.

How can be made revocation of continuing Guarantee?

  1. By giving Notice
  2. by the death of surety
  3.  other modes- alteration without consent, Discharge of Debtor

What are the Rights against Principal Debtor?

  1. Right of subrogation ( under section 140 Indian Contract act) – Guarantee amount paid by the surety, ie all rights of creator against the principal debtor, transfer to the surety.
  2. Right of Indemnity ( under section 145 of the Indian contract act) – Implied promise by the PRINCIPAL DEBTOR  to indemnify the surety.

What are the rights to securities given by the principal debtor?

section 141 of the Indian contract act- Right to securities given by the principal debtor- when the surety pays off the debt of the principal debtor he becomes entitled to claim all the securities which were given by the principal debtor to the creditor.

Right to set off

when the creditor sues the surety for the payment of the principal debtor’s liabilities, the surety can claim off, or counterpart if any, which the principal debtor had against the creditor.

1) Release of one co-surety does not discharge others

Under section 138 of the Indian Contract Act, when the repayment of debt of the principal debtor is guaranteed by more than one person they are called Co- sureties and they are liable to contribute as agreed towards the payment of guaranteed debt.

2) Co-sureties to contribute equally

under section 146, in the absence of any contract to the contrary, the co-sureties are liable to contribute equally.


A, B, C and D are co-sureties for a debt of Rs. 40,000 lent by the Z to R. R defaults in repaying the loan. A B, C, and D are liable to contribute equally Rs. 10000 each.

3) Liabilities of Co-sureties bound in different sums

Under section 147 of the Indian contract act, when co-sureties have agreed to guarantee different sums, they have to contribute equally subject to the maximum of the amount guaranteed by each one.


A, B, and sureties for D, enter into three separate bonds, each in a different penalty, A for Rs. 10,000, B for Rs 20,000 and C for Rs. 40,000. D makes default the extent of Rs. 30,000. A, B, and C are liable to pay Rs 10,000each. suppose this default payment was to extent of rs. 50000. then A would be liable for Rs. 10,000, B for rs. 17,000 and C for Rs. 23,000.







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