Page 235 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes Contract: A contract is an agreement enforceable by law. The essential elements of a valid
contract are – Legal obligation, lawful consideration, competent parties, free consent and not
expressly declared void.

Discharge of Contracts: A contract me by discharged in following ways - By performance, by
frustration (impossibility of performance), by mutual agreement, by operation of law and by
remission.
Remedies for Breach of Contract: Non-performance of a contract constitutes a breach of contract.
When a party to a contract has refused to perform or is disabled from performing his promise,
the other party may put an end to the contract on account of breach by the other party. The
remedies available to the aggrieved party are - Damages or compensations, specific performance,
suit for injunction (restrain from doing an act), suit for Quantum Meruit (claim for value of the
material used).
Provisions Related to Indemnity and Guarantee: The provisions contained in the Indian Contract
Act, 1872 related to indemnity and guarantee are related to lease agreements. Main provisions
are as under:
Indemnity: A contract of indemnity is one whereby a person promises to make good the loss
caused to him by the conduct of the promisor himself or any third person.

Example: A person executes an indemnity bond favoring the lessor thereby agreeing to
indemnify him of the loss of rentals, cost and expenses that the lessor may be called upon to
incur on account of lease of an asset to the lessee.
The person who gives the indemnity is called the 'indemnifier' and the person for whose protection
it is given is called the 'indemnity-holder' or 'indemnified'.

In case of lease agreements, there is an implied contact of indemnity, where lessee will have to
make good any loss caused to the asset by his conduct or by the act of any other person, during
the lease term.
Guarantee: A contract of guarantee is a contract, whether oral or written, to perform the promise
or discharge the liability third person in case of his default. A contract of guarantee involves
three persons - 'surety' who gives guarantee, principal debtor and creditor. A contract of guarantee
is a conditional promise by the surety that if the debtor defaults, he shall be liable to the creditor.

Bailment: The provisions of the law of contract relating to bailment are specifically applicable
to leasing contracts.
Lease agreements are essentially a type of bailment.

11.4 Main Provisions Related to Lease

Liabilities of Lessee: A lessee is responsible to take reasonable of the leased assets. He should not
make unauthorized use the assets. He should return the goods after purpose is accomplished. He
should pay the lease rental when due and must insure and repair the goods.
Liabilities of Lessor: A lessor is responsible for delivery of goods to lessee. He should take back
the possession of goods when due. He must disclose all defects in the assets before leasing. He
must ensure the fitness of goods for proper use.
Remedies to the lessor: The lessor can forfeit the assets and claim damages in case of breach by
lessee. The lessor can repossession of the assets in case of any breach by the lessee.

Remedies to the lessee: Where the contract is repudiated for lessor's breach of any obligation, the
lessee may claim damages less resulting from termination. The measure of damages is increased

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