INDEMNITY AND GUARANTEEGROUP MEMBERS: REG-NO:

• FAHAD UR REHMAN KHAN • UROOSA BAIG • SANNAN WASEEM • MOHAMMAD ALI TAHIR • SAJID AMINI

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SUBMITTED TO: SYEDA NAZNEEN WASIMCOURSE: BUSINESS LAW

Contract of Indemnity• A contract by which one party promises to

save other from loss. In other words, security or protection against a loss or other financial burden.

• The person Who Promises to recover loss is Indemnifier (Promisor), and the person who lost any of his goods are called Indemnity or the promise.

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Parties to Contract of Indemnity

Essentials of Contract of Indemnity• Special ContractThis contract should have essentials of all the Valid Contract.• Loss of PartyA contract of indemnity can be performed only when the loss has incurred to the promisee.• Indemnity by promisorThe reason of this contract is to protect the Promisee (Indemnity holder) from future loss.• Reasons for lossThe reason or loss should be accidental, that the damage should not be done by the promisor or promisee.

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Rights of Indemnity Holder

•He has right to Recover Damages.•He has right to Recover Cost of Suit.•He has right to Recover Sums.

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For Example: If Mr. A had a Car, and one day during driving at highway, he met a horrible accident, Which damaged most of his car, and the car was Indemnified by Mr. C. So, Mr. A has all the right to Recover damages, cost of suit or sums.

CONTRACT OF GUARANTEE

Contract of Guarantee

• A contract in which a party promises to another party that he will perform the contract or compensate the loss, in case of the default of a their person, it is the contract of guarantee.

• Creditor (Who gives money)• Principle Debtor (Who takes money)• Surety (Who takes responsibility of the payments by Debtor)

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Parties to Contract of Guarantee

7Difference between Indemnity and Guarantee

Indemnity Guarantee

Number of Parties 2 3

Number of Contracts 1 3

Nature Simple Complex

Recovery Direct Payer Surety

Essentials of Contract of Guarantee 6 Tripartite ContractIt is a simple agreement between three people Debtor, creditor and surety. All the essentials of the valid contract is required.

For Example:

If:

Then:

Mr Yasir Takes a loan from Mr Sannan On the Surety byMr Shoaib

Mr Yasir Fails to pay his Loan

Mr Shoaibhas to pay his LoanMr Sannan

Essentials of Contract of Guarantee

• Consideration ContractThere must be some consideration by creditor. The Debtor has to pay the consideration decided.

For Example:

If:

Then:

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Mr Yasir Takes a loan from Mr Sannan On the Surety by Mr Shoaib

Mr Yasir Fails to pay his Loan

Mr Shoaibhas to pay his Loan with 5% intrest rate toMr Sannan

Essentials of Contract of Guarantee

•MisrepresentationWhen the guarantee is misrepresented by the creditor.

For Example:

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Mr Yasir Gives Surety of Mr Sannan But Sannan was disqualified by law

Essentials of Contract of Guarantee

• ConcealmentA contract of guarantee is not a contract of absolute good faith. Any guarantee obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction is invalid.•Writing not NecessaryIn this, anyone can sale anything to anyone on the verbal surety.

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Kinds of Guarantee• Specific GuaranteeA guarantee to a single debt or transaction is called specific guarantee.

Example:

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Mr Yasir Takes 5 Begs of Wheat from

Mr Sannan On the Surety byMr Shoaib

Mr Yasir Again Takes 5 Begs of Wheat

Mr Sannan

Mr Yasir But failed to pay

Mr Sannan Can not sue for second transaction Mr Shoaib

Kinds of Guarantee

• Continuing GuaranteeA guarantee which extended to more than one debt or transaction is called continuing guarantee.

Example:

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Mr Yasir Can buy food to the extent of 10kMr Sannan On the Surety byMr Shoaib

Mr Yasir Can do many transaction to the extent of 10k

Rights to Surety

1. Rights against the Creditor

A. Risk to Security:In this, the creditor will take Mortgage, in terms of recovering if the debtor fails to pay.

B. Risk to claim Set off:In this, the debtor (who takes the loan or stuff) find anything faulty, then he can have the discount from Creditor.

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Rights to Surety• 2. Rights against Principle Debtor:

A. Rights of SubrogationWhen, a surety pay instead of Debtor and claims the mortgage.

Example:

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Mr. Fahad Mr Adnan Mr Farhan

Mr. Fahad

Mr Farhan

Mr Farhan

Takes a loan with his car on mortgage Surety by

Fails to pay the loanWill pay instead of Fahad toMr Adnan

Will also take Fahad’s car Mr Adnan

Rights to Surety• 2. Rights against Principle Debtor:

B. Rights of IndemnityWhen, the creditor sues the surety and debtor in case of non payment.

Example:If Mr Fahad fails to pay the payment.Then Mr. B will sue the Surety to pay.If Surety refuses to pay.Then Mr. B sue Mr. Fahad

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Rights to Surety

3. Rights against Co-Surety:When, there are more than one Surety. Are of Similar and Different amount.

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Investor

A B CSurety Surety

Gives loan to

Discharge of Surety from Liability

1.Notice of Revocation2.Death of Surety3.Change in terms of contract4.Release or Discharge of Debtor5.Arrangement without Surety’s consent.6.Creditor’s act or Omission.7.Loss of security8.Invalidation of contract

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THANK YOU!