Business Law presentation on: INDEMNITY AND GUARANTEE

INDEMNITY Definition: SEC. 124- 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”.

INDEMNITY Features TWO parties- Indemnity holder Indemnifier Sec. 10- essentials should be satisfied All insurance contracts are contracts of indemnity except life insurance.

Rights of Indemnity Holder: o To claim damages o To claim costs o Other payments

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

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

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

GUARANTEE Implied Indemnity Right Of Subrogation Disclosure of Facts Form- Oral or Written Existence of Principal Debt.

Difference b/w Indemnity & Guarantee Basis Indemnity Guarantee Meaning 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 “Contract of Guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. Section 124 126

Difference b/w Indemnity & Guarantee Basis Indemnity Guarantee Object Compensation of loss Relief to Debtor Existence of Liability Not necessary Necessary Interest No real interest Real interest for surety Consideration Consideration is present No consideration for surety or SUFFICIENT consideration for surety in the form of loan given to the debtor.

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

Revocation of Continuing Guarantee By notice By Death of Surety By other modes : Alteration without consent Novation Discharge of 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 of void agreement, surety will still be liable. E.g. surety for agreement by a minor.

RIGHTS OF SURETY Right against the principal debtor Right of SUBROGATION Right of INDEMNITY

RIGHTS OF SURETY Right of contribution against Co- Sureties Guarantee for equal amount: Equal Contribution in absence of contract (sec. 146) Guarantee for different amounts: Burden of default to be shared upto respective amount of guarantee.(Sec 147) Right ton share benefits of the securities.

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

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

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

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