Lahore Business School

Business Law

Mr. ZahidSikandar





MBA Final Oct. 13, 2010.

Indemnity requires that theparty to be indemnified shallnever be c alled upon to pay. ³A contract of guarantee is anundertaking by which a person accepts what is sometimescalled a secondary liability toanswer for the debt or default ofanother . Indemnity lder Indemnifier Guarantee When getting a bank loan. but under anindemnity the surety¶sobligation is independent ofdebtor/creditor relationship. Indemnity is not given byrepayment after payment. It istherefore a primary liability. In a contract of indemnity notonly is there no requirement fora default by a third party as acondition of liability but theremay not even be a third partyinvolved for either the creationor exercise of the right. notdependent on the debtor¶sdefault.Guarantee an indemnity are often used to reinforce each other. a person is often asked to provide a guarantee. ³An expressed or implied contract to compensate an individual for loss or damage. ³A contract by which one party promises to save other from loss caused to him by the conduct of the promisor or by the conduct of any other person is called a contract of indemnity´. an insurance policy´. for example.Indemnity ³A contr ct of indemnity is one inwhich the party sought to bemade liable him or herselfundertakes a primary liability tomake good another¶s loss whichloss may or may not result fromthe act of another (third)person ´. E enti l f nt t f indemnity An indemnity is a personalsecurity undertaking given by athird party.

Aperson who buys an insurance policy insures his property against damage.person who is primarily liable to a third. A contract of guaranty is acollateral undertaking. an insurancecontract is an indemnity contract. subject to Zproviding security byguaranteeing the loan. .Where there is liability eventhough there is no default orbreach by the principal debtor. X¶sundertaking is a contract of guarantee. theinsured is entitled to call upon theinsurer to pay him. Example: X will loan money to Y. andpresupposes an originalcontract.If and when the damage occurs. Aperson who buys an insurance policyinsures his property against damage. theinsured is entitled to call upon theinsurer to pay him. as payment by X is conditionalon Y¶s default. itis not a contract of guarantee. Example: By way of illustration. T e difference bet een indemnity and guarantee can be illustrated byexample: If X says to Y: µSupply goods to Z and if he does not pay. The guarantor Z will onlybecome liable under the guarantee ifthe principal debtor.If and when the damage occurs. this is a contract of indemnity because X¶s liability to pay is notcontingent on Y¶s default. In a guarantee the liabilityarises at the point of time when the principal borrower or debtordefaults on his obligation. Y. The contract ofguarantee is between the firstand the third persons´. I will¶. defaults. an insurancecontract is an indemnity co ntract. Example: By way of illustration. But if X says to Y: µSupply goods to Z and I will see youpaid¶.

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