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LAW OF GUARANTEE AND INDEMNITY. INDEMNITY A contract by whom one party promises to save the other from loss caused to him by the conduct of the Promisor.

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Presentation on theme: "LAW OF GUARANTEE AND INDEMNITY. INDEMNITY A contract by whom one party promises to save the other from loss caused to him by the conduct of the Promisor."— Presentation transcript:

1 LAW OF GUARANTEE AND INDEMNITY

2 INDEMNITY

3 A contract by whom one party promises to save the other from loss caused to him by the conduct of the Promisor himself or of any third person Two parties :- 1. Indemnifier 2. Indemnity holder or Indemnified

4 INDEMNITY Extent of Liability Indemnity holder may recover from the Indemnifier :- . All damages which the Indemnity holder may be compelled to pay in any suit in respect of any matter by the contract  Costs of suit filed or defended  Sum paid under the terms of the compromise effected in such suit, provided the compromise was an act of prudence or was authorised by the indemnifier  It is essential for the Indemnity holder to act within the scope of his authority and not to contravene the specific directions of the Promisor

5 INDEMNITY Commencement of Liability The liability of indemnifier arises as soon as the loss or injury to an Indemnity holder becomes imminent and is not postponed till the Indemnity holder actually suffers the loss or injury

6 GUARANTEE

7 Guarantee What is contract of guarantee A contract of guarantee is a contract,whether oral or written,to perform the promise,or discharge the liability, of a third person in case of default Three parties 1. Surety 2. Principal debtor 3. Creditor

8 Guarantee NATURE OF GUARANTEE A contract of guarantee is a conditional promise by the surety that if the principal debtor defaults, he shall be liable to the creditor. A contract of guarantee is generally made to secure a loan or goods on credit or an employment

9 Difference between indemnity and Guarantee indemnityGuarantee 1Two parties a) indemnifier b) indemnity holder Three parties a) surety b) principle debtor c) creditor 2For reimbursement of lossFor security of the creditor 3Liability of indemnifier is primary and arises when the contingent event occurs The liability of surety is secondary and arises when the principal debtor default 4The indemnifier after performing his part of the promise has no right against the third party. He can sue the third party only if there is an assignment in his favour The surety steps into the shoes of the creditor on discharge of his liability, and may sue the principal debtor

10 Guarantee Discharge of surety 1. By Revocation 2. By Death 3. By Variation in terms of Contract 4. By Release of Principal Debtor --CONT.

11 Guarantee 5. By an Act or Omission of the Creditor 6. By Arrangement between Creditor and Debtor 7. By Impairing Surety’s Remedy 8. By Concealment or Misrepresentation

12 Guarantee When a surety is not discharged 1. When the creditor enters into an agreement with a third person to give time to the principal debtor 2. When the creditor forbears to sue the principal debtor 3. When any of the co-surety is released other co sureties are not discharged

13 Rights of surety Against principal Debtor Against creditorAgainst co-sureties i) Right of subrogation ii) Right to indemnity i) Right to securities ii) Right to share dividend iii) Right to set off Unless otherwise agreed between the co-sureties, as between themselves, they share equally the debt which remains unpaid by the principal debtor. A surety can claim contribution from other co-sureties Examples A, B & C are co sureties A= B=20000 C= ) If loss = Rs A=1000 B=10000 C= ) If loss = Rs A=10000 B=16000 C= ) If loss = Rs A=10000 B=20000 C= ) If loss = Rs A=10000 B C=30000


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