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  1. 1. Contract of indemnification Promises to save the other from loss caused to him by promisor or any other person Rights of indemnified:- All damages All costs All sums for any compromise For e.g. A and B go in to a shop. B says to the shopkeeper let A have the goods and he would pay for it.
  2. 2. Contract of indemnification <ul><li>As per Indian Contract Act, indemnity should be: </li></ul><ul><li>Expressed and </li></ul><ul><li>Loss should have caused by the promisor himself or by the conduct of any other person. </li></ul><ul><li>But Indian Courts follow the English Law in case of indemnity where: </li></ul><ul><li>A contract of indemnity can be implied or expressed. </li></ul>
  4. 4. Meaning and Essentials <ul><li>Acc to Sec 126 – It’s a Contract to perform the promise or to discharge the liability of a third person in case of his default. </li></ul><ul><li>Parties- Surety, Principal debtor, Creditor </li></ul>
  5. 5. Features of Guarantee <ul><li>Concurrence </li></ul><ul><li>A person cannot become the surety without the consent of the principal debtor. </li></ul><ul><li>Primary liability in some person </li></ul><ul><li>No liability no contract of guarantee. For e.g. Time Barred debt </li></ul><ul><li>Consideration </li></ul><ul><li>Writing not necessary </li></ul><ul><li>Capacity to contract should be valid </li></ul>
  6. 6. Types of Guarantee (Sec 129) <ul><li>Specific, Simple or Limited Guarantee : it extends to a single transaction. </li></ul><ul><li>For e.g.: A guarantees B that C would make payment of Rs.10,000 for the deliver of 10 pairs of shoes on 20 th Sep. After the completion of obligations the guarantee would be discharged. </li></ul><ul><li>Continuing Guarantee : It extends to series of transactions. For e.g. A guarantees B for all the payments that the C would make to B for the delivery of shoes. </li></ul>
  7. 7. Types of Guarantee (Sec 129) <ul><li>Revocation of Continuing Guarantee : </li></ul><ul><li>By Notice of Revocation (Sec 130) </li></ul><ul><li>By Death of Surety. (Sec 131) </li></ul>
  8. 8. Nature and Extent of Surety’s Liability. <ul><li>Liability of Surety is secondary </li></ul><ul><li>It is coextensive with that of the principle debtor- all costs (sec 128) </li></ul><ul><li>i.e. Quantum of obligation of a surety is the same (or less than if agreed) as that of the principal debtor. </li></ul><ul><li>Liability under continuing guarantee </li></ul>
  9. 9. Rights of Surety <ul><li>RIGHTS AGAINST CREDITOR : </li></ul><ul><li>To insist the creditor to sue the principal debtor, but surety will have to indemnify the creditor for any expenses or loss resulting therefrom. </li></ul><ul><li>Right to set – off. </li></ul><ul><li>Right of Subrogation (Sec 140) </li></ul><ul><li>Surety getting rights of principal debtor after the payment of the guaranteed debt. </li></ul>
  10. 10. <ul><li>RIGHT AGAINST PRINCIPAL DEBTOR </li></ul><ul><li>Right to Indemnity (Sec 145) </li></ul><ul><li>Right to be relieved of liability </li></ul><ul><li>RIGHT AGAINST CO – SURETIES </li></ul><ul><li>Co – Sureties to contribute equally. </li></ul><ul><li>Liability of Co – Sureties bond in different sums. </li></ul>
  11. 11. DISCHARGE OF SURETY <ul><li>Revocation by Novation </li></ul><ul><li>Variance in terms of contract (M.S. Anirudhun V. Thomco’s Bank Ltd.) </li></ul><ul><li>Release or Discharge of principal debtor. </li></ul><ul><li>Composition, Extension of time and Promise not to sue. </li></ul><ul><li>Failure on part of some other persons to join as co – sureties. </li></ul>
  12. 12. DISCHARGE OF SURETY <ul><li>Guarantee obtained by misrepresentation </li></ul><ul><li>Guarantee obtained by concealment. </li></ul>