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Indemnity and Guarantee 23042022......pptx
1.
2. The contract of Indemnity and Contract of Guarantee are
specific types of contracts. The specific provisions relating
to these contracts are contained in Secc124 to 147 of the
Indian Contract Act, 1872.
The Contracts of Indemnity has been defined as: "A Contract
whereby 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."
Indemnity, in simple words, is protection against future
loss.
3. The person who promises to save the other is
called the Indemnitor or Indemnifier.
The person who is compensated is the
Indemnitee, Indemnified or the indemnity-
holder.
An indemnity can be defined as a sum paid by A to B
by way of compensation for a particular loss
suffered by B. A, the indemnitor may or may not be
responsible for the loss suffered by the B, the
indemnitee.
4. Ex-A lost his share certificates.He appliedto
the company for the issue of duplicate
certificate.The company askedA to furnish
an ‘indemnity bond’ to protect the company
against any claim that may be made by any
person on the original certificates. Here,A is
the indemnifierand B is the indemnityholder.
5. INDEMNITY
Features
TWO parties- Indemnity holder
Indemnifier
Sec. 10-essentials should besatisfied
A l l insurance contracts are
contracts of indemnity except life
insurance.
7. (Section 125) The promisee in a contract of indemnity, acting
within the scope of his authority, is entitled to recover from
the promisor/indemnifier—
(1)All damages which he may be compelled to pay in any
suit in respect of any matter to which the promise to
indemnify applies;
(2) All costs which he may be compelled to pay in any such
suit if, in bringing or defending it.
(3) All sums which he may have paid under the terms of any
compromise of any such suit.
8.
9. 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 for whom the guarantee is given is
called the Principal Debtor, and the person to whom the
guarantee is given is called the Creditor (Section 126).
A guarantee may be either oral or written, although in the
English law, it must be in writing.
10. Example 1 : When A requests B to lend `10,000 to C and guarantees that C
will repay the amount within the agreed time and that on C falling to do
so, he will himself pay to B, there is a contract of guarantee.
Here, B is the creditor, C the principal debtor and A the surety.
Example 2 : Where ‘A’ obtains housing loan from LIC Housing and if ‘B’
promises to pay LIC Housing in the event of ‘A’ failing to repay, it is a
contract of guarantee.
Example 3 : X and Y go into a car showroom where X says to the dealer to
supply latest model of WagonR to Y. In case of Y’s failure to pay, X will be
paying for it. This is a contract of guarantee because X promises to
discharge the liability of Y in case of his defaults.
11. The person who gives the guarantee is called
the ‘surety’.
The person in respect of whose defaultthe
guarantee is given is called ‘principal debtor’.
The person to whom the guarantee is given is
called‘creditor’.
12. Consideration for guarantee [Section 127] :
What constitutes consideration in a case of guarantee is an
important issue and is laid down in Section 127 of the Act. As per
Section 127 of the Act, “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.”
Example : 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 a
sufficient consideration for C’s promise.
13. 1. Existence of a principal debt.
2. Benefit to principal debtor is sufficient
consideration, but past consideration is no
consideration for a contract of guarantee.
3. Consent of surety should not be obtained by
misrepresentation or concealment of a material
fact.
4. Can be oral or written.
5. Surety can proceeded against without proceeding
against the principal debtor first.
6. If the co-surety does not join, the contract of
guarantee is not valid.
14. INDEMNITY GUARANTEE
In indemnity ,there are twoparties
i.e.indemnifier and indemnityholder.
In guarantee,there arethree parties
i.e.creditor,principaldebtor and
surety.
Thereis only one contractbtw
indemnifierand indemnity holder.
There are three contracts, one btw
principaldebtor and creditor,second
btw creditor and surety and third
betweensurety and principaldebtor.
Theliability of indemnifier is primary. The liability of the surety is
secondary and arises only if the
principaldebtors failsto perform his
obligations.
15. INDEMNITY GUARANTEE
Theliabilityof indemnifier arises only
on the happeningof contingency.
There is a existing legal debt, the
performanceof whichis guaranteed
by thesurety.
The indemnifier act independently
without any request ofthe debtor or
thirdparty.
Under guarantee, itis necessarythat
surety should give guarantee at the
request ofdebtor.
The indemnifier can’t sue the third
party for loss in his own name.
Surety afterdischargingthe debt can
sue the principaldebtor.
Indemnity is for reimbursementof
loss.
Thecontractofguaranteeis for
surety of debt .
16. The liability of surety is secondary i.ehe is
liableonly on defaultof principal debtor.
The liability of surety arises immediately on
the default of principal debtor unless there is
a provision in the contract that the creditor
must first proceed against principal debtor or
must give a noticeof defaultto surety.
17. If creditor holds security from principal
debtor for his debt, thecreditor need not first
resort to those securities beforesuing surety.
Surety is not liableifguaranteehas been
obtained bymisrepresentation.
Surety is liableeven ifthe principal debtor
has been discharged like Principal debtor
being discharged.
19. OrdinaryGuarantee
When a guarantee is given for a single specific
debt or transaction, it is called ordinary
transaction.
ContinuingGuarantee
When a guarantee extends to a series of
distinct and separable transactions, itis
continuing guarantee.
20. The guaranteemay be discharged in the
following manner:
1. Notice ofRevocation
2. Death of Surety
3. Variation ofContract
4. Release or discharge of Principal Debtor
5. Lossof Security
6. Creditorsact or commission impairing surety’s
eventual remedy.
7. By Composition with the Principal Debtor
21. Right of Surety against theCreditor
1.Right to benefitof creditorssecurities
2.Right to claim set off,ifany