Contract of indemnity


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Contract of indemnity

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Contract of indemnity

  1. 1. Contract of Indemnity <ul><li>“ A contract of indemnity is 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.” (Section 124) </li></ul><ul><li>Mr. A contracts with the Government to return to India from abroad after completing his studies and serve the Government for a fixed period. He fails to return to India. This is a contract of indemnity and he is bound to reimburse the Government. </li></ul>
  2. 2. <ul><li>A person who promises to make good the losses, i.e., the promisor is called the indemnifier and the person whose loss is to be made good, i.e., the promisee is called the indemnity-holder or the person who is indemnified . </li></ul><ul><li>By a contract of indemnity, a security is provided to the promisee against any anticipated loss. </li></ul><ul><li>To ‘indemnify’ means to save from loss . </li></ul>
  3. 3. Essentials & Rights <ul><li>Essentials </li></ul><ul><li>Must contain all the essentials of a valid contract. </li></ul><ul><li>Promisee must have suffered a loss. </li></ul><ul><li>Rights of indemnity-holder (promisee) </li></ul><ul><li>Entitled to recover from promisor – Damages. </li></ul><ul><li>Entitled to recover from promisor – Costs. </li></ul><ul><li>Entitled to recover from promisor – All sums. </li></ul><ul><li>Entitled to recover from promisor – Suit for specific performance. </li></ul><ul><li>Note: Rights of indemnifier are analogous to the rights of a surety. </li></ul>
  4. 4. Contract of Guarantee <ul><li>It is a contract to perform the promise, or discharge the liability of a third person in case of his default. </li></ul><ul><li>The person who gives the guarantee is called the surety , the person in respect of whose default the guarantee is given is the principal debtor and the person to whom the guarantee is given is the creditor . </li></ul>
  5. 5. <ul><li>A guarantee may be either oral or written; express or implied. </li></ul><ul><li>To invoke contract of guarantee, default must be committed by the third person on whose behalf a person stands surety. </li></ul><ul><li>Contract of guarantee is also known as a contract of suretyship . </li></ul><ul><li>A lends money to B, and C promises A that in case B fails to pay the money he will pay the money. This is contract a contract of guarantee. </li></ul><ul><li>Every contract of guarantee has 3 parties, viz., Principal Debtor (B), Creditor (A), and Surety or Guarantor (C). </li></ul>
  6. 6. Consideration <ul><li>Something done or any promise made for the benefit of the principle debtor, is presumed by law to be sufficient consideration in the contract of guarantee. It is not necessary that there should be some benefit to the surety himself. </li></ul><ul><li>B requests A to sell and deliver to him goods on credit. A agrees to do so provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods . This is sufficient consideration for C’s promise. </li></ul>
  7. 7. Essentials of Contract of Guarantee <ul><li>Debt must exist, which should be recoverable. </li></ul><ul><li>Existence of three parties. </li></ul><ul><li>Must be a distinct promise to pay by surety in case of default committed by P. Debtor. </li></ul><ul><li>P. Debtor must be primarily liable. Surety’s liability is secondary. </li></ul><ul><li>There should be some consideration. </li></ul><ul><li>Liability must be legally enforceable. </li></ul><ul><li>Must have all the essentials of a contract. </li></ul>
  8. 8. Continuing Guarantee <ul><li>A guarantee which extends to a series of transactions is called a Continuing Guarantee . </li></ul><ul><li>Series of transactions implies series of separate and distinct future transactions. </li></ul><ul><li>For instance, guarantee for the conduct of a servant appointed to collect rents. </li></ul><ul><li>A guarantee which covers a single transaction is called Single or Specific guarantee . </li></ul><ul><li>In a specific guaratee, the liability of surety exists only to a single or specific transaction, while in a continuing guarantee his liability is not restricted to a single transaction but to a series of transactions. </li></ul>
  9. 9. Revocation of Continuing Guarantee <ul><li>By Notice (Section 130): Revoked by surety as to future transactions by notice to creditor. </li></ul><ul><li>By death of the Surety (Section 131) </li></ul><ul><li>By discharge of Surety: It is discharged by the following ways. </li></ul><ul><li>By way of any variance (Section 133) in terms of the contract w/o surety’s consent. </li></ul><ul><li>By release or discharge of P. Debtor. </li></ul><ul><li>By creditor compounding (favoring) with P. Debtor. </li></ul><ul><li>By creditor’s act/omission impairing surety’s eventual remedy (Section 139). </li></ul><ul><li>By creditor losing security against the P. Debtor (Section 141). </li></ul><ul><li>By misrepresentation of facts by creditor (Section 142). </li></ul><ul><li>By concealment of facts by creditor (Section 143). </li></ul><ul><li>By Failure of co-surety to join (Section 144). </li></ul>
  10. 10. Rights of Surety <ul><li>Rights of Subrogation (Section 140): This is right of surety against P. Debtor. This arises on payment of the whole sum due or performance of the entire duty. Surety steps into the shoes of the creditor. And may now sue the P. Debtor if required. </li></ul><ul><li>Right to benefit of creditor’s securities (Section 141): Entitled to the benefit of every security which the creditor has against the P. Debtor at the time when the contract of suretyship is entered into. </li></ul>
  11. 11. <ul><li>Right to indemnity (Section 145): Entitled to recover from the P. Debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully. </li></ul><ul><li>Right to be contributed equally in case where 2 or more persons are co-sureties. That is, right of a surety against the co-surety (Section 146). </li></ul><ul><li>A , B and C , as sureties to D for the sum of Rs.3000 lent to E . E makes default in payment. A , B and C are liable, as between themselves, to pay Rs.1000 each. </li></ul>