Indemnity and Guarantee 23042022......pptx

Indemnity

1. 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.

2. The person who promises to save the other is called the Indemnitor or Indemnifier. T he 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.

3.  Ex- A lost his share certificates. He applied to the company for the issue of duplicate certificate. The company asked A 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 indemnifier and B is the indemnity holder.

4. INDEMNITY Features TWO parties- Indemnity holder Indemnifier Sec. 10- essentials should be satisfied All insurance contracts ar e contracts of indemnity except life insurance.

5. Rights of Indemnity Holder: To claim damages To claim costs Other payments

6. (Section 125) The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor/indemnifier— 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.

7. 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.

8. 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.

9. The person who gives the guarantee is called the ‘ surety ’. The person in respect of whose default the guarantee is given is called ‘ principal debtor ’. The person to whom the guarantee is given is called ‘ creditor’.

10. 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.

11. Existence of a principal debt. Benefit to principal debtor is sufficient consideration, but past consideration is no consideration for a contract of guarantee. Consent of surety should not be obtained by misrepresentation or concealment of a material fact. Can be oral or written. Surety can proceeded against without proceeding against the principal debtor first. If the co-surety does not join, the contract of guarantee is not valid.

12. INDEMNITY GUARANTEE In indemnity , there are two parties i.e. indemnifier and indemnity holder. In guarantee, there are three parties i.e. creditor, principal debtor and surety. There is only one contract btw indemnifier and indemnity holder. There are three contracts, one btw principal debtor and creditor, second btw creditor and surety and third between surety and principal debtor. The liability of indemnifier is primary. The liability of the surety is secondary and arises only if the principal debtors fails to perform his obligations.

13. INDEMNITY GUARANTEE The liability of indemnifier arises only on the happening of contingency. There is a existing legal debt, the performance of which is guaranteed by the surety. The indemnifier act independently without any request of the debtor or third party. Under guarantee, it is necessary that surety should give guarantee at the request of debtor. The indemnifier can’t sue the third party for loss in his own name. Surety after discharging the debt can sue the principal debtor. Indemnity is for reimbursement of loss. The contract of guarantee is for surety of debt .

14. The liability of surety is secondary i.e he is liable only on default of 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 notice of default to surety.

15. If creditor holds security from principal debtor for his debt, the creditor need not first resort to those securities before suing surety. Surety is not liable if guarantee has been obtained by misrepresentation. Surety is liable even if the principal debtor has been discharged like Principal debtor being discharged.

16. 1. Ordinary Guarantee 2. Continuing Guarantee

17. Ordinary Guarantee When a guarantee is given for a single specific debt or transaction, it is called ordinary transaction. Continuing Guarantee When a guarantee extends to a series of distinct and separable transactions, it is continuing guarantee.

18. The guarantee may be discharged in the following manner: Notice of Revo c ation Death of Surety Variation of Contract Release or discharge of Principal Debtor Loss of Security C reditors act or commission impairing surety’s eventual remedy. By Composition with the Principal Debtor

19. Right of Surety against the Creditor 1. Right to benefit of creditors securities 2. Right to claim set off, if any

20. Right against Principal Debtor 1. Right of Subrogation 2. Right to claim Indemnity

21. Right against Co - surety 1. Liabilities of co - surety when contributing equally. 2. When the cosurety’s have agreed to guarantee diff. sums