Agenda <ul><li>Contract of Indemnity </li></ul><ul><li>Contract of Guarantee </li></ul><ul><li>Kinds of Guarantees </li></...
Contract of Indemnity <ul><li>Definition of Contract of Indemnity </li></ul><ul><li>Indian Contract Act 1872 </li></ul><ul...
Definition of Contract of Indemnity (Contd...) <ul><li>English Law </li></ul><ul><li>Wider in scope </li></ul><ul><li>Tran...
Instances of Contracts of Indemnity <ul><li>A contracts to Indemnify B against the consequences of any proceedings, which ...
<ul><li>Indemnifier </li></ul><ul><li>Indemnified or Indemnity holder </li></ul><ul><li>Fire insurance is an example of Co...
Rights of Indemnity holder when sued <ul><li>All damages which he may be compelled to pay in any suit with respect to any ...
<ul><li>Rights of the Indemnifier </li></ul><ul><li>Time of commencement of the Indemnifier’s liability </li></ul><ul><li>...
Contract of Guarantee <ul><li>Definition </li></ul><ul><li>According to Indian Contract Act, a “contract of guarantee” is ...
Concurrence
Illustration  <ul><li>Bank Loan: C advances a loan of Rs. 5000 to P, and S promises to C that if P does not repay the loan...
Primary Liability <ul><li>Principal debtor has the primary liability </li></ul><ul><li>Surety has the secondary liability ...
Essential elements of a valid contract <ul><li>Surety and Creditor must be capable of entering into a valid contract </li>...
Illustrations  <ul><li>P requests C to sell and deliver to him goods on credit. C agrees to do so, provided S will guarant...
Comparison between Indemnity and Guarantee
Kinds of Guarantees <ul><li>Specific Guarantee </li></ul><ul><li>Given for a  single  debt till it’s paid </li></ul><ul><l...
Extent of Surety’s Liabilty <ul><li>Co-extensive  with principal debtor (according to Indian Contract Act) </li></ul><ul><...
Rights of Surety <ul><li>Against the Creditor </li></ul><ul><li>Right of Set-Off –  Can rely on counter-claim </li></ul><u...
Surety’s rights against the principal debtor <ul><li>Right to indemnity </li></ul><ul><li>Implied promise  by the Principa...
Against Co-sureties <ul><li>Right of contribution </li></ul><ul><li>When Debt guaranteed by 2 or more sureties </li></ul><...
Discharge of Surety <ul><li>Variance in terms of contract </li></ul><ul><ul><ul><li>Without the surety’s consent  results ...
Release/Discharge of Surety <ul><li>Contract  between the Creditor & the Principal debtor by Principal debtor is released ...
Loss of Security <ul><li>If the creditor loses or parts with any security given at the time of guarantee, the surety is di...
Invalidation of Contract due to Misrepresentation or Concealment <ul><li>Any guarantee obtained by means of misrepresentat...
Act Impairing Surety’s Eventual Remedy <ul><li>If a creditor doesn’t do any act or omits to do some act which his duty to ...
When Discharge Does not Happen <ul><li>P owns C a debt guaranteed by S. the debt becomes payable. C doesn’t sue P for a ye...
 
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Lab presentation sectionb_group11

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LEGAL ASPECTS OF BUSINESS

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  1. 2. Agenda <ul><li>Contract of Indemnity </li></ul><ul><li>Contract of Guarantee </li></ul><ul><li>Kinds of Guarantees </li></ul><ul><li>Rights of Surety </li></ul><ul><li>Discharge of Surety </li></ul><ul><li>Invalidation of Contract due to Misrepresentation or Concealment </li></ul>
  2. 3. Contract of Indemnity <ul><li>Definition of Contract of Indemnity </li></ul><ul><li>Indian Contract Act 1872 </li></ul><ul><li>A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity” </li></ul><ul><li>Definition includes </li></ul><ul><ul><ul><li>Express promises </li></ul></ul></ul><ul><ul><ul><li>Conduct of promisor or the conduct of another person </li></ul></ul></ul><ul><li>Definition does not include </li></ul><ul><ul><ul><li>Implied promises </li></ul></ul></ul><ul><ul><ul><li>Accidents and events not depending on the conduct of promisor or any other person </li></ul></ul></ul>
  3. 4. Definition of Contract of Indemnity (Contd...) <ul><li>English Law </li></ul><ul><li>Wider in scope </li></ul><ul><li>Transaction entered into at the instance of the promisor </li></ul><ul><li>Covers losses due to events and accidents which do not depend on the conduct of any person </li></ul><ul><li>Courts in India follow the English law in respect to indemnity </li></ul><ul><li>Relevant sections of the contract act “are not exhaustive of the law of indemnity and the courts here would apply the same equitable principles that the courts in England do” </li></ul>
  4. 5. Instances of Contracts of Indemnity <ul><li>A contracts to Indemnify B against the consequences of any proceedings, which C may take against B in respect of a certain sum of 300 rupees </li></ul><ul><li>A and B go into a shop. B says to the shopkeeper, “Let him have the goods, I will see you paid.” </li></ul><ul><li>A and B claim certain goods from a railway company as rival owners. A takes delivery of the goods by agreeing to compensate the railway company against loss in case B turns out to be the true owner </li></ul>
  5. 6. <ul><li>Indemnifier </li></ul><ul><li>Indemnified or Indemnity holder </li></ul><ul><li>Fire insurance is an example of Contract of indemnity according to the English law </li></ul><ul><li>Contract of Indemnity may be express or implied </li></ul><ul><li>Implied from the circumstances of the case or relationship of the parties </li></ul><ul><li>A particular form of general contract </li></ul>
  6. 7. Rights of Indemnity holder when sued <ul><li>All damages which he may be compelled to pay in any suit with respect to any matter to which the promise to indemnify applies </li></ul><ul><li>All costs incurred in bringing or defending any suit </li></ul><ul><ul><ul><li>Did not conflict with orders of the promisor </li></ul></ul></ul><ul><ul><ul><li>Prudent in the absence of any contract of indemnity </li></ul></ul></ul><ul><ul><ul><li>Promisor authorized him to bring or defend the suit </li></ul></ul></ul><ul><li>All sums paid under the terms of any compromise </li></ul><ul><ul><ul><li>Compromise not contrary to the orders of the promisor </li></ul></ul></ul><ul><ul><ul><li>Prudent for the promisee to make in the absence of contract of indemnity </li></ul></ul></ul><ul><ul><ul><li>Promisor authorized him to compromise the suit </li></ul></ul></ul>
  7. 8. <ul><li>Rights of the Indemnifier </li></ul><ul><li>Time of commencement of the Indemnifier’s liability </li></ul><ul><li>“ Indemnity is not given by repayment after payment. Indemnity requires that the party to be indemnified shall never be called upon to pay” – Buckley, L.J </li></ul><ul><li>“ If the indemnified had incurred a liability and that liability is absolute , he is entitled to call upon the indemnifier to save him from that liability and pay it off” – Chagla, J. </li></ul>
  8. 9. Contract of Guarantee <ul><li>Definition </li></ul><ul><li>According to Indian Contract Act, a “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the “surety”, the person in respect of whose default the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor“ </li></ul><ul><li>It can be either oral or written </li></ul>
  9. 10. Concurrence
  10. 11. Illustration <ul><li>Bank Loan: C advances a loan of Rs. 5000 to P, and S promises to C that if P does not repay the loan, S will pay it </li></ul><ul><li>Shopping: S and P go into a shop. S says to the shopkeeper C, “Please supply whatever goods P wants now, and if he does not pay, I will.” </li></ul>
  11. 12. Primary Liability <ul><li>Principal debtor has the primary liability </li></ul><ul><li>Surety has the secondary liability </li></ul><ul><li>Surety is liable only when there is a default by principal debtor </li></ul><ul><li>The liability is enforceable by law </li></ul><ul><li>Enforceable liability is not valid in case of a minor being the principal debtor </li></ul>
  12. 13. Essential elements of a valid contract <ul><li>Surety and Creditor must be capable of entering into a valid contract </li></ul><ul><li>Principal debtor can be a minor, in which case surety has the primary liability </li></ul><ul><li>Consideration received by the principal debtor is sufficient for the surety </li></ul><ul><li>“ Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee” </li></ul>
  13. 14. Illustrations <ul><li>P requests C to sell and deliver to him goods on credit. C agrees to do so, provided S will guarantee the payment of the price of the goods. S promises to guarantee the payment in consideration of C’s promise to deliver the goods to P. This is a sufficient condition for S’s promise. – Valid agreement </li></ul><ul><li>C sells and delivers goods to P. S, afterwards without consideration, agrees to pay for them in default of P. - Void agreement </li></ul>
  14. 15. Comparison between Indemnity and Guarantee
  15. 16. Kinds of Guarantees <ul><li>Specific Guarantee </li></ul><ul><li>Given for a single debt till it’s paid </li></ul><ul><li>Continuing Guarantee </li></ul><ul><li>Extends to a series of transactions </li></ul><ul><li>Revocation </li></ul><ul><li>Through Notice </li></ul><ul><li>By Surety’s death </li></ul>
  16. 17. Extent of Surety’s Liabilty <ul><li>Co-extensive with principal debtor (according to Indian Contract Act) </li></ul><ul><li>Can be made less through special contract </li></ul><ul><li>When the principal debtor cannot be held liable </li></ul><ul><li>The surety becomes liable as a principal debtor </li></ul><ul><li>The collateral becomes the Principal Contract </li></ul>
  17. 18. Rights of Surety <ul><li>Against the Creditor </li></ul><ul><li>Right of Set-Off – Can rely on counter-claim </li></ul><ul><li>Right of Subrogation – Gets the creditor’s rights (against the principal debtor) after payment of debt </li></ul><ul><li>Right to Securities – Entitled to the benefit of securities(if any) which the creditor has against the debtor </li></ul>
  18. 19. Surety’s rights against the principal debtor <ul><li>Right to indemnity </li></ul><ul><li>Implied promise by the Principal debtor to indemnify the surety </li></ul><ul><li>Surety is entitled to recover all payments from the Principal debtor properly made </li></ul><ul><li>Damages Included </li></ul>
  19. 20. Against Co-sureties <ul><li>Right of contribution </li></ul><ul><li>When Debt guaranteed by 2 or more sureties </li></ul><ul><li>Liable to contribute as agreed towards the payment of the debt </li></ul><ul><li>Payment of more than his share gives him the right of contribution </li></ul><ul><li>Case of insolvency of one of them </li></ul>
  20. 21. Discharge of Surety <ul><li>Variance in terms of contract </li></ul><ul><ul><ul><li>Without the surety’s consent results in discharge of the surety (transactions subsequent to the variance) </li></ul></ul></ul><ul><ul><ul><li>Case of Guarantee for several distinct duties : Variance in one doesn’t affect others </li></ul></ul></ul><ul><ul><ul><li>Immaterial whether the variation is prejudicial to the surety or not </li></ul></ul></ul><ul><ul><ul><li>Best vs. Brown ---- Lord Westburly </li></ul></ul></ul>
  21. 22. Release/Discharge of Surety <ul><li>Contract between the Creditor & the Principal debtor by Principal debtor is released </li></ul><ul><li>Act or Omission of the creditor , the legal consequence of which is the discharge of the principal debtor </li></ul>
  22. 23. Loss of Security <ul><li>If the creditor loses or parts with any security given at the time of guarantee, the surety is discharged to the value of the security </li></ul><ul><li>In case of more than one debts each secured by separate security, no discharge is allowed for securities relating to other debts </li></ul><ul><li>C,P and S are three individuals involved, furniture is security </li></ul>
  23. 24. Invalidation of Contract due to Misrepresentation or Concealment <ul><li>Any guarantee obtained by means of misrepresentation or keeping silence made by the creditor concerning the material part of the transaction is invalid </li></ul><ul><li>C doesn’t acquaint S of P’s previous conduct at the time of contract and after P’s default, C sues S - Invalid </li></ul>
  24. 25. Act Impairing Surety’s Eventual Remedy <ul><li>If a creditor doesn’t do any act or omits to do some act which his duty to surety requires him to do, and the eventual remedy of the surety himself against Debtor is thereby impaired and surety is discharged </li></ul><ul><li>On S’s guarantee C employs P as his cashier and promises to tally the cash once a month but fails to do so. After P embezzles, S is not liable to C on his guarantee. </li></ul>
  25. 26. When Discharge Does not Happen <ul><li>P owns C a debt guaranteed by S. the debt becomes payable. C doesn’t sue P for a year after that day. S is not discharged from surety ship </li></ul><ul><li>Where there are co-sureties, a release by creditor of one of them does not discharge the others, neither does it free surety from his responsibility to other sureties </li></ul>

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