Indemnity and Guarantee

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Indemnity and Guarantee

  1. 1. Business Law presentation on: INDEMNITY AND GUARANTEE
  2. 2. INDEMNITY Definition: SEC. 124- 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”.
  3. 3. INDEMNITY Features  TWO parties- Indemnity holder Indemnifier  Sec. 10- essentials should be satisfied  All insurance contracts are contracts of indemnity except life insurance.
  4. 4. INDEMNITY Rights of Indemnity Holder: o To claim damages o To claim costs o Other payments
  5. 5. INDEMNITY When does liability of Indemnifier arise? Bombay & Madras High Courts: Only when loss Arises Calcutta, Allahabad, Patna & Madras High Courts: When loss is Likely to arise
  6. 6. GUARANTEE Definition: SEC. 126- A “Contract of Guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. E.g. Guarantee for credit sales
  7. 7. GUARANTEE Parties to guarantee Surety- Who gives Guarantee Principal Debtor- For whom guarantee is given Creditor- To whom guarantee is given
  8. 8. GUARANTEE Features  Valid Contract ( essentials of Sec-10)  Consideration for surety is loan given by creditor.  Liability arises immediately when debtor makes default.
  9. 9. GUARANTEE  Implied Indemnity  Right Of Subrogation  Disclosure of Facts  Form- Oral or Written  Existence of Principal Debt.
  10. 10. Difference b/w Indemnity & Guarantee Basis Indemnity Guarantee Meaning 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”. A “Contract of Guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. Section 124 126
  11. 11. Difference b/w Indemnity & Guarantee Basis Indemnity Guarantee Object Compensation of loss Relief to Debtor Existence of Liability Not necessary Necessary Interest No real interest Real interest for surety Consideration Consideration is present No consideration for surety or SUFFICIENT consideration for surety in the form of loan given to the debtor.
  12. 12. KINDS OF GUARANTEE  Perspective  Retrospective  Specific  Continuing
  13. 13. Revocation of Continuing Guarantee By notice By Death of Surety By other modes : Alteration without consent Novation Discharge of Debtor
  14. 14. Nature & Extent of surety’s liability Secondary in nature Contingent Immediate in nature Co- extensive Surety may limit his liability Liability in continuing guarantee In case of void agreement, surety will still be liable. E.g. surety for agreement by a minor.
  15. 15. RIGHTS OF SURETY Right against the principal debtor  Right of SUBROGATION  Right of INDEMNITY
  16. 16. RIGHTS OF SURETY Right against the Creditor  Right to Claim Securities  Right of set off  Right to share reduction  Right to demand termination of employee (fedelity insurance)
  17. 17. RIGHTS OF SURETY Right of contribution against Co- Sureties  Guarantee for equal amount: Equal Contribution  Guarantee for different amounts: Burden of default to be shared equally up to respective amount of guarantee.
  18. 18. DISCHARGE OF SURETY By Revocation By notice By death of surety By novation
  19. 19. DISCHARGE OF SURETY By conduct of creditor By variation in the terms Release or discharge of debtor Compounding with principal debtor Impairing Surety’s remedy By loss of security
  20. 20. DISCHARGE OF SURETY By Invalidation of Contract of Guarantee Guarantee obtained by misrepresentation By concealment Failure of Consideration Failure of Co-Surety to join
  21. 21. THANK YOU!! Presentation By-

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