indemnity contract law powerpoint priyank

7/30/2019 Indemnity Contract Law Powerpoint Priyank

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INDEMNITY AND GUARANTEE

Definition not exhaustive

Section 124 of the Indian Contract Act does not give an exhaustive definition of contracts ofindemnity. This section Includes

(i) only express promises to indemnify and

(ii) only those cases where the loss arises from the conduct of the promisor or of any otherperson.

It does not include

(i) implied promises to indemnify and

(ii) cases where loss arises from accidents and events not depending on the conduct of anyperson.


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Characteristics

Characteristics (or the requisites) of a Contract of indemnity are as follows :

1. A contract of guarantee must satisfy all the essential elements of a contract. For example,the object must be lawful, there must be free consent etc.

2. The Contract may be express orimplied.An express contract is by word or by writing. Animplied contract of indemnity comes from the circumstances of the` case or the relationshipbetween the parties.

3. Section 69 implies a promise to indemnify

Rights of the Indemnity-holder Section 125 of the Contract Act lays down that the indemnity-holder is entitled to get from

the indemnifier :

1. all damages which he may be compelled to pay in any suit in respect of any matter towhich the promise to indemnify applies ;

2. all costs which he may be compelled to pay in such suits (provided he acted prudently orwith the authority of the indemnifier) ;

3. all sums which he may have paid upon compromise of such suit (provided thecompromise was prudent or was authorized by the indemnifier).


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CONTRACTS OF GUARANTEE

ClassificationContracts of guarantee may be of three types :

(1) for payment to the Creditor to the Principal Debtor by the Guarantor ;(2) payment of price for goods sold, and(3) fidelity guarantee

A contract of guarantee may be for

(1) a future debt or obligation or for(2) an existing debt.

A guarantee can also be

(1) a Simple Guarantee or(2) a Continuing Guarantee



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Essentials of a Valid Guarantee

1. A contract of guarantee must satisfy all the essential elements of acontract. (For example, the object must be lawful ; there must be freeconsent etc.) But the following points are to be noted.

2. A contract of guarantee may be either oral or written. Sec 126.

3. In a contract of guarantee there are three parties i.e., the creditor, theprincipal. debtor and the surety. All the parties must join the contract.

4. In a contract of guarantee, the primary liability is that of principaldebtor. The liability of surety arises only when there is a default of theprincipal debtor. Therefore, the liability of the surety is secondary.

5. in a contract of guarantee the principal debtor may be a minor. In thiscase the surety is liable to pay even though the minor may not be.The contract will be enforced as between the surety and the creditor.

6. Consideration


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Contracts of Guarantee which are invalid

1. misrepresentation :

2. Concealment :3. when Co-surely does not join :

4. Lack of essential elements :


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DIFFERENCES BETWEEN INDEMNITY AND GUARANTEE

1. In a contract of indemnity, there are 'two parties : the indemnifier and the indemnity-holder. In a contract ofguarantee there are threeparties : the creditor, the principal debtor, and t surety.

2. In a contract of indemnity it is necessary to have only one contract, i.e., between the indemnity-holder andthe indemnifier ; in a contract of guarantee it is necessary to have three contracts, between the parties,

i.e., between the creditors, the principal debtors and the surety.

3. in a contract of indemnity, the liability of the indemnifier is primary ; in a contract of guarantee, the liabilityof the surety is secondary i.e., the surety is liable only if the principal debtor fails to perform hisobligations.

4. in a contract of guarantee there is an existing debt or duty, the performance of which is guaranteed by thesurety. In a contract f indemnity, the liability of the indemnifier arises only on the happeningofacontingency.

5. In a contract of indemnity the indemnifier can sue only the indemnity older for his loss, because there isno contract between the indemnified and other parties unless there is an assignment on his favour ; in acontract of guarantee the surety can proceed against principal debtor.

6. in a contract of guarantee the surety, after he discharges the debt owing to the creditor, can proceedagainst the principal debtor; in a contract of indemnity the loss falls on the indemnifierexcept in certainspecial


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CONTINUING GUARANTEE

A guarantee which extends to a series of transactions is called a Continuing Guarantee.(Sec. 129). A guarantee covering a single transaction may be called a Simple -Guarantee orSpecific Guarantee.

How a Continuing Guarantee is Revoked

A continuing guarantee is revoked under the f owing circumstances.

1. By notice of revocation by the surety : The notice operates to revoke the surety'sliabilities as regards transaction is entered into after the notice. He continues to beliable for transactions entered into prior to the notice.-Sec. 130.

1. By the death of the surety : "The death of the surety operates, in the absence of acontract to the contrary, as a revocation of a continuing guarantee, so far a regardsfuture transactions.''-Sec. 131

THE EXTENT OF THE LIABILITY OF THE SURETY

Liability of two persons, primarily liable, not affected by arrangement between themthat one shall be surety on other's

Default


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WHEN IS A SURETY DISCHARGED FROM LIABILITY ?

1. Notice of revocation

2. Death of surety

3.variation of contract

4. Release or discharge of principal debtor

5. Arrangement with principal debtor

6. Creditor's forbearance to sue does not discharge surety

7. Release of one co-surety

8. Act or omission impairing surety's eventual remedy

9. Loss of security

10. Miscellaneous

THE RIGHTS OF THE SURETY

Against the Principal Debtor

1. Right of Subrogation :

2. Right to Indemnity :

CONTRIBUTION BETWEEN CO-SURETIES

Co-sureties liable to contribute equally

Liability of Co-sureties bound in different sums


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indemnity contract law powerpoint priyank

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