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Contracts of Indemnity & Guarantee. Contracts of indemnity Acc. To sec. 124 of Indian contract act— A Contract by which one party promises to save the.

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Presentation on theme: "Contracts of Indemnity & Guarantee. Contracts of indemnity Acc. To sec. 124 of Indian contract act— A Contract by which one party promises to save the."— Presentation transcript:

1 Contracts of Indemnity & Guarantee

2 Contracts of indemnity Acc. To sec. 124 of Indian contract act— A Contract by which one party promises to save the another from losses caused to him by the conduct of the promisor himself or by the conduct of any other person, it is called a contract of indemnity. Acc. To sec. 124 of Indian contract act— A Contract by which one party promises to save the another from losses caused to him by the conduct of the promisor himself or by the conduct of any other person, it is called a contract of indemnity. The person who promises to protect another--- indemnifier. The person who promises to protect another--- indemnifier. The person who is so protected is –indemnity- holder. The person who is so protected is –indemnity- holder.

3 Essentials of contracts of indemnity. 1. Essentials of a valid contract. 2.Indemnifier promises to save indemnity holder from the loss caused to him by the conduct of the promisor, or by the conduct of any other person. 3.Contract may be expressed or implied. 4.Liability of indemnifier commences when the indemnifier suffers some loss according to the terms and conditions of the contract. 5. Contracts of insurance are also covered in this.

4 Rights of indemnity holder Section 125 states rights Claim for damages.-SEC 125(1) 2. Claim for cost of suit.-sec125(2) 3. Recovery of sums paid under conditions of compromise.-sec125(3)

5 Rights of indemnifier Rights under doctrine of subrogation. Rights under doctrine of subrogation. To sue against third party after indemnifying the indemnity holder. To sue against third party after indemnifying the indemnity holder. Not to compensate for losses not covered under con. Of indemnity. Not to compensate for losses not covered under con. Of indemnity.

6 Contracts of guarantee Acc. To sec. 126 of I.C.Act-A contact of guarantee is a contract to perform the promise or discharge the liability of a third person in case of default. Acc. To sec. 126 of I.C.Act-A contact of guarantee is a contract to perform the promise or discharge the liability of a third person in case of default. PARTIES—surety, principal debtor,& creditor. PARTIES—surety, principal debtor,& creditor.

7 Essentials of C. OF G. Three parties. Three parties. Three contracts. Three contracts. Secondary liability of surety. Secondary liability of surety. Existence of principal debt—enforceability by law. Existence of principal debt—enforceability by law. Consideration-no need for separate consideration. Consideration-no need for separate consideration. No misrepresentation or concealment. No misrepresentation or concealment. Contractual capacity of parties. Contractual capacity of parties.

8 Kinds of guarantee 1.Specific guarantee 1.Specific guarantee 2.Continuing guarantee 2.Continuing guarantee REVOCATION OF CONTINUING GUARANTEE— REVOCATION OF CONTINUING GUARANTEE— By notice of revocation. By notice of revocation. By surety’s death. By surety’s death. By novation. By novation. By alteration in the terms of contract. By alteration in the terms of contract. Release or discharge of principal debtor. Release or discharge of principal debtor. Arrangement between P.D. &Creditor. Arrangement between P.D. &Creditor. Loss of security.(details in discharge of surety from liability) Loss of security.(details in discharge of surety from liability)

9 Nature & extent of surety’s liability. In general circumstances the liability of surety arises only in case of default of pr.dr. so his liability is secondary. In general circumstances the liability of surety arises only in case of default of pr.dr. so his liability is secondary. the liability of surety is co-extensive with that of principal debtor—if liability of surety reduces then surety’s liability also reduces.— when creditor recovers a part of his loan from property of principal debtor. the liability of surety is co-extensive with that of principal debtor—if liability of surety reduces then surety’s liability also reduces.— when creditor recovers a part of his loan from property of principal debtor. --when liability of p.d. reduces by order of court. --when liability of p.d. reduces by order of court.

10 Contd. If due to some reasons the p.d. cannot be held liable, still surety can be held liable in following situations— If due to some reasons the p.d. cannot be held liable, still surety can be held liable in following situations— If p.d. is a minor If p.d. is a minor If p.d. is declared insolvent. If p.d. is declared insolvent. If liability of p.d. has become time-barred. If liability of p.d. has become time-barred. If creditor delays in filing suit against the debtor. If creditor delays in filing suit against the debtor. ---moreover, in certain cases a surety can restrict or limit his liability if he wants to do so.he can also restrict the amt. of liability. ---moreover, in certain cases a surety can restrict or limit his liability if he wants to do so.he can also restrict the amt. of liability.

11 Contd. Liability of surety commences with default of the principal debtor.—the creditor has the right to sue the surety even without taking action against the p.d. Liability of surety commences with default of the principal debtor.—the creditor has the right to sue the surety even without taking action against the p.d. Liability of co-surety. Liability of co-surety.

12 Discharge of surety from the liability. By revocation of contract of guarantee— only for future transactions,he still remains liable if liability arises before giving notice. By revocation of contract of guarantee— only for future transactions,he still remains liable if liability arises before giving notice. By surety’s death---the estate of deceased is liable for transaction which has already taken place. By surety’s death---the estate of deceased is liable for transaction which has already taken place. By novation. By novation. By variance in the terms of contract. By variance in the terms of contract.

13 Contd. By release or discharge of principal debtor.---but if due to operation of law p.d. is discharged, say on insolvency, surety is not discharged. By release or discharge of principal debtor.---but if due to operation of law p.d. is discharged, say on insolvency, surety is not discharged. Agreement with p.d.---regarding giving more time,not to sue against him,without getting consent of surety. Agreement with p.d.---regarding giving more time,not to sue against him,without getting consent of surety. By creditor’s act or omission imparing surety’s remedy.—harming surety’s interest. By creditor’s act or omission imparing surety’s remedy.—harming surety’s interest. By loss of security by creditor. By loss of security by creditor. By invalidation of guarantee---obtained by mis- representation,fraud,or in case of refusal of co- surety. By invalidation of guarantee---obtained by mis- representation,fraud,or in case of refusal of co- surety.

14 Rights of surety Rights against debtor- Rights against debtor- Right of subrogation. Right of subrogation. Right to be indemnified. Right to be indemnified. Rights against creditor- Rights against creditor- Right to securities. Right to securities. Right to get information about debtor’s conduct. Right to get information about debtor’s conduct. Right to set off-if he has to settle his own amt. from creditor. Right to set off-if he has to settle his own amt. from creditor.

15 Rights against co-surities- Right to claim contribution— Right to claim contribution— IN CASE OF CO-SURITIES OF EQUAL AMT. IN CASE OF CO-SURITIES OF EQUAL AMT. IN CASE OF CO-SURITIES FOR DIFFERENT SUMS. IN CASE OF CO-SURITIES FOR DIFFERENT SUMS. IN CASE OF DISCHARGED CO-SURETY. IN CASE OF DISCHARGED CO-SURETY ////////////// //////////////


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