IDEMNITY GUARANTEES BAILMENT PLEDGE AGENCY THE SALE OF GOODS ACT, 1930 INDIAN PARTNERSHIP ACT, 1932

     

Indemnity


Contract of indemnity is one of the specific contract having some specific features along with all the essential of a valid contract as given in Indian Contract Act, 1872. It is a class of contingent contract. Indemnity, is a specific contract express or implied, to keep a person harmless from loss which that person may incur by reason of some act, omission or event. As pointed out by Anson on Contracts, a form of indemnity may be illustrated by If you will supply goods to A. I will see you paid. There is, as a rule, a right of subrogation to all the remedies available to the person indemnified under an indemnity available to a person indemnifying.

Section 124 of Indian Contract Act said that the contract of

indemnity means 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. The person who makes the promise is known as the indemnifier and the person to whom the promise is made is known as the indemnity holder. (1) Indemnity is a protection against the loss, especially in the form of a promise to pay for the loss of money or goods (2) by a person to the other while entering in a transaction with the third party.

Essentials:Essentials:- The following are the essential conditions for a

contract of indemnity:indemnity:-

Promise:Promise:- There should be a promise by one person to the other

person.

Saving from loss:- The second condition is that the promise loss:should be for the purpose of saving from the loss.

Loss by Human Agency: - The loss should have been caused

due to the conduct of the promisor himself or by the conduct of any other person. But the loss should be caused through human agency.

Example: - A contracts of indemnity B against the

consequence of any proceedings which C may take against B in respect of a certain sum of Rs. 200. This is contract of Indemnity.

The definition of Contract of Indemnity under Section 124 of Indian Contract Act does not includes (i) implied promises to indemnify and (ii) cases where loss arises from accidents and events not depending on the conduct of promisor or any accidents and events not depending on the conduct of promisor or any other person. This definition is not exhaustive. In Gajanan Moreshwar Vs.Moreshwar Madan AIR (1942) Bom-302, it has been held that BomSection 124 and 125 of Indian Contract Act are not exhaustive and the Courts here would apply the same equitable principles that the Courts of England do. A contract of indemnity may be express or implied. An implied contract of Indemnity may be inferred from the circumstances of the case or from relationship of the parties. (Section 69 of Indian Contract Act also implies a promise to indemnify.)

 




Time of commencement of the indemnifiers liability under the contract of indemnity: -

Different High Courts have been observing different rules in this connection.  Some High Courts have held that the indemnifier is not liable until the indemnifier has incurred an actual loss.


Other have held that indemnified can compel the indemnifier to make good his loss even before the actually discharge his liability. It has been observed by Buckley L.J. in Richardson, ex party etc. Re(1911) 2 K.B.705. Indemnity is not given by Indemnity repayment after repayment. Indemnity requires that the arty to be indemnified shall never be called upon to apply. The latter view, which is based on equitable principles, has now almost come to stay. stay.

Liverpool Insurance Cos Case (1914) .To indemnify .To does not merely mean to reimburse in respect of moneys paid, but to save from loss in respect of liability against which the indemnity has been given. If it be held that payment is a condition precedent to recovery, the contract may be of little value to the person to be indemnified, who may be unable to meet the claim in the first instance.

Similar observation was made by Chagla J. in the case of Gajanan Moreshwar Vs.Moreshwar Madan AIR (1942) Bom.302, Bom.302, that if the Indemnified had incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and pay if off:

 Rights

of indemnity holder when sued:sued: The following rights have been conferred by section 125 of the Act  All damages which the indemnity holder may be compelled to pay in a suit to which this contract applies.  (2) All costs which he may be compelled to pay in suit in case he has not contravened the orders of the promisor.  (3) All sums he has paid under compromise

 

GUARANTEE 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
 

Section 126, The Indian Contract Act

Key Fundamentals  Promise to perform promise of a third party if the third party breaks the promise. Primary liability of third party must exist  3 parties surety (guarantor), principal surety (guarantor), principal-debtor and creditor debtor and creditor  It is secondary liability as principal-debtor must be liable and defaulted. It is co co-extensive extensive to principal to principal-debtor.

of Contract of Guarantee  1. Contract of guarantee may be oral or in writing.  2. It is necessary that there should be principal debt in existence at the time of contract.  3. Benefit to the principal debtor is the sufficient consideration for a contract of guarantee.  4. Consent should not have been obtained by fraud or by concealment of the material facts or through misrepresentation Sec 142 &143
 Nature

Liability of Surety: According to Sec 128 of the Contract Act, the liability Surety: of the co-surety is co-extensive with the principal debtor. It means that the cocoliability of the surety is the same as that of the principal debtor. If the amount of debt of the principal debtor is decreased because of whatever reason there will be decrease in the liability of the surety to that extent. For example, if the principal debtor is a minor and the remedy cannot be availed of due to his minority, the same excuse may be pleaded by the surety also. Suit for Claim Against Surety: The liability of the surety is joint and Surety: several. Hence, the creditor can sue the surety instead of suing the principal debtor first. The Apex Court also set aside the condition violating this principle or policy of law Co-suretyCo-surety- Meaning and Its liability: Sometimes, there is a condition that liability: the creditor will not act unless any other person does not join as co-surety. coThe liability of the co-surety is also co-extensive with that of the principal cocodebtor and provides an additional security to the creditor. The creditor can proceed against the co-surety without suing the surety or the principal codebtor first. Though, ultimately the amount will be shared by the above mentioned persons.




RIGHTS OF SURETY
{1} Against the Principal Debtor Against the Co-surety Co{2} Against the Creditor {3}

 

Rights Against the Principal Debtor 1. Right of Subrogation : After payment to the creditor, the surety attains the status of the creditor. Hence, he acquires all the rights against the principal debtor which could be exercised by the creditor earlier when the payment was due. Sec. 140 2. Right of Indemnity : The amount paid by the surety rightfully to the creditor can be recovered by the surety from the principal debtor. It is an implied promise by the principal debtor to the surety Sec 145 Rights Against the Creditor : Right to take security: After having discharged the duty regarding payment of money, the surety comes into the shoes of the creditor and hence, acquires all the rights against the debtor which can be exercised by the creditor. He is entitled to have the possession of the goods put as security before the creditor at the time of contract.

The surety can take the security which was placed before the creditor at the time of contract of guarantee. The goods received after the contract of guarantee cannot be touched by the surety in any circumstances.  If the goods given as security are lost by the creditor then that loss will release the surety from making payment
 

Rights against the Co- surety : The co-surety owes a duty Cocoto share the payment equally. This sharing is possible when they are co-sureties for the same debt. It is coimmaterial whether they have agreed to share jointly or severally. Sec. 146 Though the co-sureties can decide something contrary to cothis principle by a stipulation in the contract it may be a possibility that one of the sureties may be released and the other may still be under stress of liability.

Modes of Discharge of Surety : The following modes are recognized by the Contract Act for the discharge of co surety 1. Revocation by Surety (Sec. 130) : A surety gets released from future transaction when he gives notice to the creditor for this purpose. The release from liability under this mode extends to the future transactions only. It means that the liability for the past transaction will still continue. Revocation is possible in continuing guarantee only Sec130 2. By death of the Surety (Sec. 131) : The death of the surety abates or washes the liability of the surety. The person is not in existence now against whom the proceedings could be initiated. But, the parties may decide contrary to this rule. 3. By variance in the terms of the contract (Sec. 133): If there is any variance in the terms of the contract between the principal debtor and the creditor without the consent of the surety, the surety gets discharged as regards transactions subsequent to such a change. The reason for such a discharge is that the surety agreed to be liable for a contract which is no more there and he is not liable on the altered contract.

4. By Release or Discharge of Principal Debtor (Sec. 134) : The liability of the surety, according to section 128, is co-extensive with that of the principal codebtor. Therefore, if by any contract between the creditor and the principal debtor is released, or by any act or omission of the creditor, the principal creditor is discharged, the surety will also be discharged from his liability accordingly. 5. When the Creditor Compounds with, gives time to or Agrees not to Sue the Principal Debtor (Sec. 135) : A contract between the creditor and the principal debtor, by which the creditor makes a composition with or promises to give time to or not to sue the principal debtor, discharges the surety unless the surety assents to such contract. 6.By Creditors Act or Omission Impairing Suretys Eventual Remedy (Sec. 139) : Section 139 provides that if the creditor does not act, which is inconsistent with the right of the surety, or omits to do an act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged. 7. By Loss of the Security by the Creditor (Sec. 141) : According to section 141, the surety is entitled to all securities, which the creditor has against the principal debtor at the time when the contract of the suretyship is entered into. If the creditor loses or without the consent of the surety, parts with such security the surety is discharged to the extent of the value of the security.

 

Distinction 1. Parties : In contract of Indemnity, there are two parties, in case of guarantee there are three parties. 2.Object : In contrast of Indemnity, the object is to provide security from loss and in case of guarantee to provide additional security to the creditor. Charan Singh vs. Finance Ltd.4 3.Liability : In indemnity the liability of the indemnifier is primary one and in case of contract of guarantee it is the secondary one.

4. Recovery of Amount after Payment : In case of Indemnity, the indemnifier cannot recover the amount. On the other hand, the recovery can be made in case of guarantee.  5. Number of Contract : There are only two contracts in case of Indemnity contract and there are three contracts in case of the guarantee.