indemnity and gurantee1
TRANSCRIPT
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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