Business Law presentation on INDEMNITY AND GUARANTEE INDEMNITY

Business Law presentation on: INDEMNITY AND GUARANTEE

INDEMNITY Definition: SEC. 124 A contract by which one party promises to save the other f r o m loss caused to him by the conduct o f the promisor himself, o r by the conduct o f any other person, is c a l l e d a “Contract o f Indemnity”.

INDEMNITY Features TWO parties- Indemnity h o l d e r Indemnifier Sec. All 10 - essentials should be satisfied insurance contracts are contracts o f indemnity except l i f e insurance.

INDEMNITY Rights o f Indemnity Holder: o To claim damages o To claim costs o Other payments

GUARANTEE Definition: SEC. 126 A “Contract o f Guarantee” is a contract to perform the promise, o r discharge the liability, o f a third person in case o f his default. E. g. Guarantee f o r credit sales by a third person

GUARANTEE Parties to guarantee Surety- Who gives Guarantee Principal Debtor- For whom guarantee is given Creditor- given To whom guarantee is

GUARANTEE Features �Valid Contract ( essentials of Sec-10) �Consideration f o r surety is loan given by creditor. �Liability arises immediately when debtor makes default.

GUARANTEE �Implied �Right Indemnity Of Subrogation �Disclosure �Form- o f Facts O r a l o r Written �Existence o f Principal Debt.

Difference b/w Indemnity & Guarantee Basis Meaning Section Indemnity A contract by which one party promises to save the other f r o m loss caused to him by the conduct o f the promisor himself, o r by the conduct o f any other person, is called a “Contract o f Indemnity”. 124 Guarantee A “Contract o f Guarantee” is a contract to perform the promise, o r discharge the liability, o f a third person in case o f his default. 126

Difference b/w Indemnity & Guarantee Basis Indemnity Guarantee Object Compensation o f loss Relief to Debtor Existence of Liability Not necessary Necessary Interest No r e a l interest Real interest f o r surety Consideration is present No consideration f o r surety o r SUFFICIENT consideration f o r surety in the f o r m o f loan given to the debtor.

RIGHTS OF SURETY Right against the Creditor Right to Claim Securities Right o f set o f f Right of subrogation Right to demand termination o f employee (fedelity insurance)

Revocation of Continuing Guarantee By notice By Death o f Surety By other modes : Alteration without consent Novation Discharge o f Debtor

Nature & Extent of surety’s liability Secondary in nature Contingent Immediate in nature Co- extensive Surety may limit his liability Liability in continuing guarantee In case o f void agreement, surety w i l l s t i l l be liable. E. g. surety f o r agreement by a minor.

RIGHTS OF SURETY Right against the principal debtor Right o f SUBROGATION Right o f INDEMNITY

RIGHTS OF SURETY Right o f contribution against Co- Sureties Guarantee f o r equal amount: Equal Contribution in absence of contract (sec. 146) Guarantee f o r d i f f e r e n t a m o u n t s : Burden o f default t o be shared upt o respective amount o f guarantee. (Sec 147) Right ton share benefits of the securities.

DISCHARGE OF SURETY By Conduct of principal By notice By death o f surety By novation By revocation

DISCHARGE OF SURETY By conduct By of creditor variation in the terms Release o r discharge o f debtor Compounding with principal debtor By loss o f security

DISCHARGE OF SURETY By Invalidation Guarantee of Contract of obtained by misrepresentation By concealment Failure o f Consideration Failure o f Co-Surety to join

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