Scribd Logo
Upload

Welcome to Scribd!

  • 57 views

    Business Law Week 6

    Uploaded by

    s w
    The document discusses contracts of indemnity and guarantee under Indian contract law. It defines indemnity as compensating a party for loss, and guarantee as promising to pay another's debt if they default. It outlines the parties involved in each, their rights and liabilities, differences between the contracts, types of guarantees, and circumstances that discharge a surety from liability.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Business Law Week 6

    Uploaded by

    s w
    57 views20 pages
    The document discusses contracts of indemnity and guarantee under Indian contract law. It defines indemnity as compensating a party for loss, and guarantee as promising to pay another's debt if they default. It outlines the parties involved in each, their rights and liabilities, differences between the contracts, types of guarantees, and circumstances that discharge a surety from liability.

    Original Title

    business law week 6

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses contracts of indemnity and guarantee under Indian contract law. It defines indemnity as compensating a party for loss, and guarantee as promising to pay another's debt if they default. It outlines the parties involved in each, their rights and liabilities, differences between the contracts, types of guarantees, and circumstances that discharge a surety from liability.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    57 views20 pages

    Business Law Week 6

    Uploaded by

    s w
    The document discusses contracts of indemnity and guarantee under Indian contract law. It defines indemnity as compensating a party for loss, and guarantee as promising to pay another's debt if they default. It outlines the parties involved in each, their rights and liabilities, differences between the contracts, types of guarantees, and circumstances that discharge a surety from liability.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 20

    Indemnity and Guarantee

     Meaning and definition of Contract of


    Indemnity
     The
    term indemnity means to
    compensate the party who suffers a loss.
    A contract of indemnity is an obligation
    by one person to provide compensation
    to the other party for a particular loss
    suffered by him.
    Indemnity

     Section 124 states:


     “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 person who promises to pay compensation is
    called the indemnifier (promisor).
     The person whose loss is compensated is called
    the indemnity holder or indemnified (promise)
    Indemnity

     Example:
     C parked his cycle at a cycle stand. C lost the
    token issued by B. B refused to return the cycle.
    To get his cycle, C promised to compensate B if
    any other person claims the cycle.
    Indemnity

     Rights of Indemnity Holder


     The following are rights of indemnity holder (sec
    125)
     1. Right to Recover Damages
     Indemnity holder can recover from indemnifier all
    damages which he may be compelled to pay in
    respect of any suit filled against him.
     2. Right to Recover Cost of Suit
     Indemnity holder can recover from indemnifier
    expenses in respect of any suit filed by him with the
    authority of indemnifier.
    Indemnity

     3. Right to Recover Sums


     Theindemnity holder can recover from indemnifier all
    amount which he has paid as a result of any
    compromise of the suit.
    Rights of Indemnifier
    The rights of indemnifier are the same as the
    rights of a guarantor.
    Contract of Guarantee

     Meaning and definition


     A guarantee is a contract to pay the amount
    due from another person, in case the latter fails
    to pay. It is made to enable a person to get
    loans, goods on credit, employment etc.
     Section 126 states:
     “A contract of guarantee is a contract to
    perform the promise or discharge the liability of
    a third person in case of his default.”
    Contract of Guarantee

     PARTIES TO CONTRACT OF GUARANTEE


     The person who gives the guarantee is called
    the surety or guarantor.
     The person to whom the guarantee is given is
    called the creditor.
     The person in respect of whose default the
    guarantee is given is called the principle
    debtor.
    Contract of Guarantee

     Example:
     “A requests B to lend Rs. 5 lac to C. A
    guarantees that if C fails to return the loan, A
    will pay to B. This is a contract of guarantee”.
    Contract of Guarantee

     Essentials of Contract of Guarantee


     1. Tripartite Contract
     2. Consideration
     3. Misrepresentation
     4. Concealment
     5. Primary Liability
     6. Writing not Necessary
     7. Capacity of Parties
    Contract of Guarantee

     1. Tripartite Contract
     In a contract of guarantee, there are three parties namely
    principle debtor, creditor and surety. Under the contract, three
    separate contracts are made among them and consent of all the
    parties is necessary.
     All the essentials of a valid contract are also required for a contract
    of guarantee.
     2. Consideration
     It must be supported by some consideration.
     3. Misrepresentation
     A guarantee obtained by means of misrepresentation made by
    the creditor regarding the facts of the contract is invalid. If consent
    of surety is obtained by misrepresentation, the surety will be
    discharged from his liability.
    Contract of Guarantee

     4. Concealment
     The creditor must disclose all the material facts
    regarding the contract to the surety before entering
    into a contract. But if the creditor conceals the material
    facts of contract from surety, and thus obtains his
    consent, the contract in invalid. (sec.143)
     5. Primary Liability
     Under contract of guarantee, the primary liability is of
    the principal and secondary liability is of the surety. The
    liability of surety arises only when the principal debtor
    defaults. The liability must be enforceable at law.
    Contract of Guarantee

     6. Writing not Necessary


     It is not necessary that contract of guarantee
    must be in writing. The contract may be oral or
    written. It may be express or implied. (sec. 126)
     7. Capacity of Parties
     All the requirements for a valid contract i.e. free
    consent, consideration, lawful object and
    competence of parties etc. are necessary to
    form this contract.
    Difference between Indemnity and Guarantee
    INDEMNITY GUARANTEE
    Number of Parties Three parties: creditor, principal
    Two parties: indemnity holder and debtor and surety
    indemnifier
    Number of Contracts There are three contracts: between
    There is one contract between creditor and principal debtor, creditor
    indemnifier and indemnity holder and surety, surety and principal
    debtor.
    Nature of Lability The liability of surety is secondary in
    The liability of indemnifier is primary in nature. The primary liability is of
    nature. principal debtor.
    Filing of Suit The surety after paying to creditor
    The indemnifier cannot sue the third can sue principal debtor in his own
    party for loss in his own name. He can name.
    sue if the claim is assigned in his favor.
    Purpose The surety promises to pay debt or
    The indemnifier promises to save perform promise if principal debtor
    indemnity holder from any loss. makes default.
    Extent and Nature of Surety’s Liability

     1. the liability of surety is secondary.


     2. the liability of surety is same as that of principal debtor.
     3. the liability of surety arises immediately on the default of principal
    debtor.
     4. the surety is not liable where the creditor has obtained
    guarantee by misrepresentation.
     5. the law does not treat the principal debtor and surety as one
    person.
     6. the discharge of principal debtor by operation of law does not
    discharge the surety.
     7. liability of surety does not come to an end on the death of
    principal debtor.
    Kinds of Guarantee

     There are two kinds of guarantee:


     1. Specific Guarantee
     A guarantee which is given for a single debt or
    transaction is called ordinary, simple or specific
    guarantee. The liability of surety comes to an end when
    the guaranteed debt is paid or contract is performed.
     2. Continuing Guarantee
     A continuing guarantee is given for a series of debts or
    obligations. A surety’s liability continues until the
    revocation of guarantee.
    Discharge and Surety from Liability

     1. Notice of Revocation
     A specific guarantee can be revoked by notice if it has not been
    acted upon. But a continuing guarantee may be revoked anytime
    by the surety as to future transactions by giving a notice to the
    creditor.
     2. Death of Surety
     In specific guarantee, the surety is not discharged from liability on
    his death if liability has already occurred. But in continuing
    guarantee, the death of surety discharges him from lability.
     3. Change in Terms of Contract
     When any change is made in the terms of the contract by principal
    debtor and creditor without the surety’s consent, the surety stands
    discharged with respect to transactions subsequent to the change.
    Discharge and Surety from Liability

     4. Release or Discharge of Principal Debtor


     A release of principal debtor is the release of surety also.
    The surety is discharged by any contract between the
    creditor and principal debtor by which principal debtor
    is released. (sec:134)
     5. Arrangement without Surety’s Consent
     When the creditor, without the consent of surety, makes
    a composition or promises to give more time or not to
    sue principal debtor, the surety will be discharged.
    (sec.135)
    Discharge and Surety from Liability

     6. Creditor’s Act or Omission


     If the creditor does any act which is inconsistent with
    rights of the surety, or omits to do any act which his duty
    to the surety requires him to do, the surety is discharged.
    (sec.139)
     7. Loss of Security
     If the creditor loses or, without the consent of the surety,
    parts with the security given by the principal debtor
    against the debt, the surety is discharged from liability
    up to the value of security.
    Discharge and Surety from Liability

     8. Invalidation of Contract
     The surety is liable if contract of guarantee is
    valid. A surety is discharged from liability when
    the contract of guarantee is invalid.

    You might also like