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Indemnity & Guarantee

Contracts
of
Indemnity
&
Guarantee are a species of the
general contract. They are
contained in Chapter VIII (Sec
124 to 147) of the ICA 1872.

Contract of Indemnity


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 contract of indemnity (Sec 124)

The person who promises to make good the loss is


called the indemnifier (promisor) and the perosn
whose loss is to be made good is called the
indemnified or indemnity-holder (promisee)

It is a kind of a contingent contract

Examples:


A contracts to indemnify B against the


consequence of any proceedings which C may
take against B in respect of say a certain sum
of money.

A and B claim certain property from a Rly Co.


as rival owners. A takes the delivery of goods
by agreeing to compensate the rly co. against
loss in case B turns to be the true owner.

A and B go into a shop. B says to the


shopkeeper let A have the goods I will pay you.
The contract is one of indemnity.

The def. is not exhaustive and


includes the following:



Express promises to Indemnify


Cases where loss is caused by the conduct of the
promisor himself or by the conduct of any other
person

And does not includes the


following:



Implied promises to indemnify


Cases where loss arises from accidents & events not
depending on the conduct of the promisor or any
other person.




A contract of Indemnity may be Express or


Implied:
Example of an implied contract of Indemnity: A
on the instruction of T, sold certain cattle
belonging to O. O held A liable for it and
recovered damages from him for selling it. Held
A could recover the loss from T as a promise by
T to A which is implied by his asking A to sell the
cattle. [Adamson Vs. Jarvis]

Rights of Indemnity holder and


Indemnifier:


Rights of indemnity holder: (sec 125)






All damages
All costs (for defending the suit)
All sums which he may have paid under the terms of any
compromise of any such suit.

Rights of Indemnifier:


The ICA is silent regarding the rights of an indemnifier,


but they are analogous to the rights of a surety.

Contract of Guarantee


A contract of guarantee is a contract to


perform the promise, or discharge the
liability, of a third person in case of his
default.
The person who gives the guarantee is
called the Surety, the person in respect of
whose default the guarantee is given is the
Principal Debtor. And the person to whom
the guarantee is given is called the Creditor.

A contract of Guarantee is a tripartite agreement which


contemplates the Principal Debtor (P), the Creditor (C) and
the Surety (S)

P
Giver of Guarantee
Surety

Pr. Debtor

Creditor

Essential Features of a Contract of


Guarantee:






Concurrence: it requires concurrence of 3 parties.


Primary liability in some person. (Other than the
surety)
Must have all the essentials of a valid contract
Writing is not necessary. (It may be oral or written;
express or implied)
A contract of guarantee is not a contract of
uberrimae fidie, i.e. one requiring full disclosure of all
material fact.

Distinction between a contract of


indemnity and Guarantee:
Contract of Indemnity

Contact of Guarantee

2 parties

3 parties

Liability is primary

Liability is secondary or
collateral

Only one contract

3 contracts

Liab. Arises on contingency

There is usually an existing debt


or duty.

Indemnifier cant sue a 3rd party

The surety can proceed against


the principal debtor.

Request not necessary

Necessary

Kinds of Guarantee:

Can be given for repayment of debt,


pmt of price, good conduct or honesty etc. A guarantee can be given for an existing

or a future debt called retrospective/prospective guarantee It may be in respect of single


or multiple transaction.

Specific Guarantee: When a guarantee extends to a


single transaction or debt. It comes to an end when
the guaranteed debt is duly discharged or promise is
duly performed.
Continuing Guarantee: When a guarantee extends to
a series of transactions. (Sec 129). The liability of
the surety in this case extends to all the transaction
contemplated until the revocation of the guarantee.

Rights of Surety: A surety has rights against 1)


The Creditor, 2) The Principal Dr. & 3) The Co-sureties


Rights against Creditor:









Rights against Principal Debtor:





Before payment of guaranteed debt: He can require the cr. to sue the pr. debtor, but he
will have to indemnify the cr. for all exp.
Right of Set off: on being sued by cr. he can rely on set off or counter claim which the dr.
has against the cr.
On payment of guaranteed debt: the surety is to all rights of the cr. & gets the rt. to
demand from the cr. all securities received before or after, irrespective of whether he is
aware of it or not.
Right to equities: he is entitled to all equities which the cr. could have enforced.
Right of subrogation: On pmt. of the guaranteed debts the surety steps into the shoes of
the cr. He has now the rt. of getting back all payments made by him.
Right to be relieved o liability: Before the pmt has been made the surety can compel the
pr. debtor to relieve from liability by paying off the debt.
Right to indemnity: has rt. to recover all pmts. made.

Right against Co sureties:

(When 2 or more sureties guarantee a debt they are


called co sureties, and there is an equality of burden and benefit..)
 Right to contribute equally (Sec 146): In the absence of any other contr. They are bound
equally.
 Liability of co surety bound in different sums (Sec 147) If one pays more than his share.
 Release of co surety: Release of one by the Cr does not discharge the others

BAILMENT & PLEDGE




BAILMENT: The word bailment is derived from the


French word ballier which means to deliver. In general
sense it means kind of handing over. In legal sense, it
involves change of possession of goods from one person
to another for some specific purpose.

Sec 148 defines bailment as the delivery of goods by one


person to another for some purpose, upon a contract,
that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the
direction of the person delivering them.

The person delivering the goods is called the bailor and


the person to whom they are delivered is called bailee.

Requisites of Bailment:








Contract
Delivery of possession: mere custody
doest create a relationship of bailor and
bailee.
There has to be a purpose
Return of specific goods
Bailment is concerned only with goods
In a contract of bailment it is only
possession that passes from bailor to
bailee and not ownership.

Classification of
Bailment


Gratuitous Bailment: it is a bailment where


no consideration passes between Blr &
Ble. (Eg. Lending of a book)
Non-Gratuitous Bailment: Where there
exists a consideration. Bailment for
rewards also come under this category.

Duties and Rights of Bailor and


Bailee
Duties of Bailor







To disclose known faults (Sec 150)


To bear extraordinary expenses of bailment besides
ordinary expenses.
To indemnify bailee for loss in case of premature
termination of gratuitous bailment. (Sec 159) bailor
has to indemnify for losses incurred in excess of the
benefit derived.
To receive back the goods: if he delays then has to pay
compensation for the delay to the bailee.
bailee.
To indemnify the bailee:
bailee: In case of defective title of
bailor
bailor the bailee suffers.

Duties of Bailee



To take reasonable care of the goods bailed. (Sec 151)


Not to make any unauthorised use of the goods (Sec
154) uses in a manner inconsistent with the terms of
contract.. Even if, there is an accident.










With the bailor


bailors consent shall have proportionate interest
Without the bailor
bailors consent (goods separable) exp of sep + dmg
Without the bailor
bailors consent (goods in separable) -

Not to mix the goods bailed with his own goods.


Not to set up an adverse title (Sec 117 of Indian
Evidence Act, 1872)
To return any accretion to the goods
To return the goods

Rights of Bailor





Enforcement of rights
Avoidance of contract
Return of goods lent gratuitously
Compensation from a wrong doer
Rights of Bailee







Delivery of goods to one of several joint bailors of goods


Delivery of goods to bailor without title
Right to apply to court to stop delivery
Right of action against trespassers
Bailee
Bailees lien

Law relating to Lien:

Lien means right of


a person to retain possession of some goods
belonging to another until some debt or claim of
the person in possession is satisfied.
Particular Lien

General Lien

This is a right available to a bailee


only against those goods in
respect of which some skill and
labour have been expended by
him.

This is the right to retain any


property belonging to the other
party in respect of any payment
lawfully
due,
provided
the
property is in the possession of
the person exercising the right.

This is the right to retain the


goods only for a charge for labour
employed or expenses incurred
upon the goods.

This is the right to retain any


property belonging to the other
party for a general balance of
account.

Finder of Goods:

A person who finds goods


belonging to another and takes them into his custody is subject to the
same responsibility as the bailee.
bailee. (Sec 71)


Rights of Finder of goods:




Right of Lien: The finder of goods has a right of lien over the goods for his
expenses. As such he can retain the goods against the owner until he
receives compensation for the trouble and expenses incurred in preserving
the goods and finding out the owner.

Right to sue for reward: If it has been offered

Right to sale: He can sell the goods found if: 1) The owner cannot be
found with reasonable diligence, 2) If found, he refuses to pay lawfully
charges to the finder 3) If goods are in the danger of perishing, 4) If lawful
charges of the finder, in respect of the goods found amount to 2/3rd of their
value.

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