indemnity and gurantee1

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Indemnity andGuarantee

Indemnity and Guarantee


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CONTRACT OFINDEMNITY

DEFINITION Acc to Indian Contract

Act- Confines itself to the lossesoccasioned due to the act of thepromisor or due to the act of anyother person.

The term Indemnity literally means

Security against loss. One party i.e.the indemnifier promise to compensatethe other party i.e. the indemnifiedagainst the loss suffered by the other.


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CONTRACT OF

INDEMNITYA contract by which one partypromises to save the other from loss

caused to him by the conduct of thepromisor himself or by the conductof any other person , is called a

contract of indemnity (sec 124)


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The person who undertakes or agreesto compensate the loss is calledindemnifier.

The person whose loss is to be made good is called the indemnity holder.

A contract of indemnity may beexpressed or implied.

Example A contract to indemnify Bagainst the consequences of anyproceedings which C may take againstin respect of certain sum of Rs 200.

This is a contract of indemnity .


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Example A promises to indemnify B,a banker for any loss that he maysustain by reason of the dishonestyof the cashier appointed by B at therequest of A. The contract betweenA and B is a contract of indemnity.Here A is the indemnifier and B isthe indemnity holder .


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ELEMENTS OF CONTRAT

OF INDEMNITY A contract of indemnity is like anyother contract and must fulfill all theessentials of a valid contract.

Consideration Free consent Competency of parties Lawful object


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RIGHTS OF INDEMNITYHOLDER

Sec 125 enumerates the rights of anindemnity holder in a contract ofindemnity. An indemnity holder canrecover from the indemnifier-

All damages which he may becompelled to pay under the contract inany suit.

All cost which he may be compelled topay in such suit (provided he acted

cont.


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prudently or with the authority ofindemnifier) All sums which he may have paid upon

compromise of such suit (providedthe compromise was prudent or wasauthorised by indemnifier).


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Contract of Guarantee


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CONTRACT OFGURANTEE

Acc to Sec 126 A contract of

guarantee is a contract to performthe promise or to discharge theliability of a third person in case ofhis default.

Guaranteeis a promiseto pay a debt owed by a third personin case the latter does not pay.


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CONTRACT OFGURANTEE

A contract of guarantee involvesthree parties i.e. the creditor , thesurety and the principal debtor .

The person who gives the guaranteeis called the surety

The person in respect of whose

default the guarantee is given iscalled the principal debtor The person to whom the guarantee

is given is called the creditor


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Example

P advances loan of Rs1000 to Q and R promises to P thatif Q does not repay the loan, R willdo so. This is contract ofguarantee. Here Q is the principaldebtor, R is the surety and P is the

creditor.


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Indemnity VS guarantee Two parties Primary & independent Only one contract Not necessary for the

indemnifier Liability arises only on

the happening ofcontingencies

Cannot sue thirdparties for loss in hisown name

Three parties Collateral or secondary Three contract Guarantee at the

request of the debtor An existing debt or

duty

Proceed against theprincipal debtor in hisown right


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ESSENTIALS OF VALID

GUARANTEE1)Existence of principal debt

A contract ofguarantee pre-supposes the existence ofa liability enforceable at law. If no suchliability exists, there can be no contractof guarantee.


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2)Consideration for a contract ofguarantee-

Acc to sec 127 anything done or any promise madefor the benefit of the principaldebtor may be sufficientconsideration to the surety for givingguarantee


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3)There should be no misrepresentation orconcealment-

Acc to sec 142- Any guarantee which has been obtained bymeans of misrepresentation made by the

creditor, or with his knowledge and assentconcerning a material part of thetransaction is invalid.

Acc to sec 143- Any guarantee which thecreditor has obtained by means of keepingsilence as to material circumstances isinvalid.


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4)When co-surety does not join-When a person gives

a guarantee upon a contract that thecreditor shall not act upon it untilanother person has joined in it as co-surety, the guarantee is not valid if thatother person does not join.


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Revocation of continuing

guarantee1. By notice2. By death of surety

3. By variation in contract


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Rights of surety

1. Rights against creditori. Before payment of the guaranteed debtii. Right of set-off

iii. On payment of the guaranteed debtiv. Right to equities

2. Rights against principal debtori. Rights to be relieved of liabilityii. Right to indemnity

conti


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3. Rights against co-suretiesi. Co-sureties liable to contribute equallyii. Release or discharge of principal

debtoriii. Compounding by creditor with principal

debtoriv. Creditors act or omission impairing

suretys eventual liability v. Loss of security


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By the conduct of thecreditor

Novation(Sec. 62)

DeathOf

Surety(Sec. 131)

Guaranteeobtained byconcealment

(Sec. 143)

Guarantee obtained by misrepresentation

(Sec. 142)

Failure of consideration

Failure of co-surety to join a

surety(Sec. 144)

Variance in termsof contract(Sec. 133)

Loss of security(Sec. 141)

Creditors or omissionimpairing

suretys eventualremedy

(Sec. 139)

Compounding by creditor with principal debtor

(Sec. 135)

Release or discharge of

principal debtor (Sec. 134)

Revocation bySurety

(Sec. 130)

By revocationBy invalidation of the contract


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By the conduct of thecreditor

Novation(Sec. 62)

DeathOf

Surety(Sec. 131)

Guaranteeobtained byconcealment

(Sec. 143)

Guarantee obtained by misrepresentation

(Sec. 142)

Failure of consideration

Failure of co-surety to join a

surety(Sec. 144)

Variance in termsof contract(Sec. 133)

Loss of security(Sec. 141)

Creditors or omissionimpairing

suretys eventualremedy

Compounding by creditor with principal debtor

(Sec. 135)

Release or discharge of

principal debtor (Sec. 134)

Revocation bySurety

(Sec. 130)

By revocationBy invalidation of the contract

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