Contract of Indemnity 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.

A contracts to indemnify B against the consequences of any legal proceedings which C may take against B in respect of a certain sum of Rs.200,000/Mr.Milind & Satish are friends and they go to purchase certain goods into a shop, Milind assures the shop keeper that let Mr.Satish purchase goods he needs & further says that I will see that you will be paid for the goods purchase by satish & I will make the loss if any.

It must contain all the essentials of a valid contract. The promisee or the Indemnity holder must have suffered loss.

Parties in a contract of Indemnity

Indemnifier (Promisor). The person who promisis or undertakes to indenmify to make the loss good is called indemnifier or promisor. Indemnity Holder/Indemnified ( Promisee) The person whose loss is to be made good is known as indemnity holder or promisee.

Key Fundamentals

It is a promise to compensate for or security against damage, loss or injury. In wider sense it includes all contracts of insurance, guarantee. It is not a collateral but an independent contract. It is a tool for allocating risks contingent liability

Enforcement

A contract of indemnity can be enforced according to its terms. Claim of Indemnity holder can include: damages, legal costs of adjudication, amount paid under the terms of compromise Indemnifier should ideally be informed of the legal proceedings or should be joined as third party There is no onus to show breach or actual loss.

All Contracts of Insurance are contracts of indemnity except life insurance

In such contracts an insurance company ( insurer) undertakes to indemnify the respective party (assured), of the losses suffered by the assured in the manner and to the extent agreed in the contract.

Rights of Indemnity Holder When Sued:

1)All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. 2) All costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit.

3)All sums which he may have paid under the terms of any
compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

Settled principle of law :

After compensating the loss to indemnity holder, indemnifier is entitled to all the ways and means by which person indemnified might have protected himself for the loss. Time of Commencement of Indemnifiers Liability:When indemnity holder incurs an absolute liability though not actual loss

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 called the principal debtor, and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written. Example: A lends money to B and C promises A that if B fails to repay he will pay the money.

The person who gives the guarantee is called the "surety. The person in respect of whose default the guarantee is given is called the "principal debtor . The person to whom the guarantee is given is called the "creditor. A guarantee may be either oral or written.

Mr.Ramesh lends Rs 50000 to Mr. Sachin and on request of Sachin Mr.Rahul promises mr.Ramesh that in case mr.sachin fails to repay the loan of Rs 50000,he will repay the same. This is the contract of guarantee. here mr.Ramesh lends Mr.Sachin Rs 50000 as a loan,Mr.Ramesh is the creditor and Mr.Sachin is the principal debtor, Mr.Rahul is surety or guarantor.

To make credit purchases

M/S brothers make credit supplies to Hilton enterprises. Under the agreement, M/S Hilton enterprises furnished guarantee of Mr. Suhail. Mr. Suhail shall be liable to make payments to M/S brothers in case of default by Hilton enterprise

Guarantee may be:

ORAL or WRITTEN

Parties I the contract of guarantee

Surety /Guarantor

the person who gives guarantee Creditor. the person in whose favor guarantee is given Principal Debtor. the person who primarily incurs liability

1.

There must be a debt existing, which should be recoverable. Existence of 3 parties ie. Principal debtor, creditor & surety. There should be some consideration

2.

3.

4.

The liability must be legally enforceable.

5.

The principal debtor must be primarily liable. Suretys liability is secondary.

There must be a distinct promise, oral or written by the surety to pay the debt in case of default by principal debtor. All essentials of a contract.

6.

7.

Unlike contract of indemnity where indemnifier is liable for indemnified in a contract of guarantee the liability of the surety is co-extensive with that of principal debtor and the creditor can proceed with principal debtor and surety simultaneously. Even the creditor with notice to principal debtor can recover the dues from surety first .But the surety will have a legal right to recover the monies he paid to creditor from the principal debtor

Contract of indemnity 1) there are 2 parties indemnifier and indemnity holder.. 2)there is 1 contract b\w indemnifier and indemnified.. 3)The nature of liability of indemnifier is primary and independent... 4)in a contract of indemnity, the indemnifier promises without the request of debtor.. 5)A contract of indemnify is for reimbursement..

Contract of Guarantee......... 1)there are 3 parties Creditor, Principal Debtor And Surety.. 2)there are 3 contracts B\W creditor and principal, principal and surety, surety and creditor. 3)Liability of surety is Secondary.... 4)contract of Guarantee is for security of a debt or performance of promise...

1. (Law) a person who assumes legal responsibility for the fulfillment of another's debt or obligation and himself becomes liable if the other defaults
2. (Law) security given against loss or damage or as a guarantee that an obligation will be met

3. Obsolete the quality or condition of being sure

4. Obsolete a means of assurance or safety

Revocation of Continuing Guarantee: By notice of revocation, By death of surety, By discharge of surety in various circumstances
Discharge of surety from Liability: By Revocation: Notice by surety Death of surety

 By Conduct of the creditor:

Variance i.e.; charge in terms on the contract Discharge of principal debtor Loss of security

 Rights of the Surety:

Rights against the principal debtor: Right of indemnity Right Against the creditor: Right to securities Right to claim set-off

Right against the Co-sureties: Equal Contribution Liability of co-sureties bond in different sums Right to share benefits of securities