Indemnity and GuaranteeA Definition contract by which one partypromises to save the other fromloss caused to him by the conductof the Promisor himself , or by theconduct of any other person(Sec.124)
Definition Contd. The person who promises to make good the loss is the Indemnifier(Promisor) The person whose loss is to be made good is Indemnified or Indemnity holder (Promisee) A contract of indemnity is really a class of contingent contracts. Definition is not exhaustive and includes : a) Express promises to indemnify b) Cases where loss is caused by the conduct of the Promisor himself or by the conduct of any other person.
Definition Contd. Definition does not include : a) Implied promises b) Cases where loss arises from accidents and events not depending on promisor and other person’s conduct.
Contract of indemnity Right of indemnity holder when sued Rights of indemnifier Time of commencement of the indemnifier’s liability.
Indemnity VS guarantee Two parties Three parties Primary & independent Collateral or secondary Three contract Only one contract Not necessary for the Guarantee at the request of indemnifier the debtor Liability arises only on the happening of An existing debt or duty contingencies Cannot sue third parties Proceed against the for loss in his own name principal debtor in his own right
Extent of surety’s liability1. Nature of surety’s liability-it is co-extensive2. Limitation of surety’s liability3. Liability under continuing guarantee
Kinds of guarantee1. Specific guarantee2. Continuing guarantee
Revocation of continuing guarantee1. By notice2. By death of surety3. By other modes
Rights of surety1. Rights against creditor i. Before payment of the guaranteed debt ii. Right of set-off iii. On payment of the guaranteed debt iv. Right to equities2. Rights against principal debtor i. Rights to be relieved of liability ii. Right to indemnity2. Rights against co-sureties i. Co-sureties liable to contribute equally ii. Release or discharge of principal debtor iii. Compounding by creditor with principal debtor iv. Creditor’s act or omission impairing surety’s eventual liability v. Loss of security
Discharge of surety By the conduct of the By invalidation of By revocation creditor the contractRevocation by Death Novation Surety Of (Sec. 62) (Sec. 130) Surety (Sec. 131) Guarantee obtained Guarantee Failure of co- Failure ofby misrepresentation obtained by surety to join a consideration (Sec. 142) concealment surety (Sec. 143) (Sec. 144) Variance in terms Release or Compounding Creditor’s or Loss of security of contract discharge of by creditor with omission (Sec. 141) (Sec. 133) principal debtor principal debtor impairing (Sec. 134) (Sec. 135) surety’s eventual remedy (Sec. 139)