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OMTEX – CLASSES

1. Define a contract of indemnity. What


are its essential elements?
Ans: Contract of indemnity:- “ It is a contract by which one
party promises to save the other party from any loss caused to him by
the conduct of promisor himself or any other person.”
Thus there are two parties in the contract of indemnity they are_
a. Indemnifier (promisor) &
b. Indemnified/ indemnity holder (promisee).

Essential elements of a contract of indemnity are_


The following are the essential elements of a valid contract
i. It must be a valid contract :- Since the contract of Indemnity is a contract
between two parties of Indemnifier & Indemnity holder it must fulfill all the
essential elements of a valid contract under the section 10 of the “Indian
Contract Act”.
ii. Parties:- The two parties in a contract of indemnity are_
a. indemnifier(promisor)
b. Indemnity holder (Promisee).
iii. Loss to promisee:- The indemnity holder must have suffered damage or
loss before he can hold the promisor liable. Thus the happening of the loss or
damage is a contingency upon which liability of the indemnifier comes into
existence.
iv. Lawful object:- The object in a contract of indemnity must be one which
can be enforceable by law.
v. Express/Implied:- A contract of indemnity may be expressed or implied. A
contract is expressed when it is in word of mouth (i.e) oral or in written. An
implied contract is one which it neither in oral nor in written but it is presumed
from circumstances.
For eg. In a contract of Agency, there is an implied contract by the principle to
indemnify the agent for any loss which is incurred by him towards the third
party.
vi. Exceptions(Exclusion):- A contract of indemnity does not include_
a. Cases where loss arises due to accidents such as fire/marine, or any unforeseen
event.
b. Any event not depending on the conduct of the person For e.g. Death.
2.What are the right of the Indemnity
holder when sued.
Ans. The right of the Indemnity holder when sued are as follows.
i. Damages:- An indemnity holder when sued is entitled to recover all
damages from the indemnifier.
ii. Cost:- An indemnity holder when sued is entitled to recover all cost
from the indemnifier, provided he acted according to the authority of
the indemnifier.
iii. Sum:- All sum which he may have paid under the terms of
compromise (settlements) provided it is not contrary to the orders of
the indemnifier.
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3. Define a contract of guarantee.
Explain its essential elements.
Ans. Contract of guarantee:- It is a contract to perform the promise
or discharge the liability of the third person in case of his default.
Illustration:- P lends money to Q and R promises to P that in case Q fails to pay
the money he will pay the money. This is a contract of guarantee.
Essential elements of contract of guarantee. i. The contract of guarantee must
have all the essentials elements of a valid contract.
ii. Tripartite agreement:- Every contract of guarantee has three parties which
are_
a. Principle debtor b. Creditor & c. Surety.
Also every contract of guarantee has three agreements which are_
a. An agreement between the Creditor and the Principal Debtor.
b. An agreement between the Surety and the Creditor.
c. An agreement between the Surely and the Principal debtor.
iii. Liability:- There are two types of liabilities_
a. Primary liability:- The liability of the principal debtor is primary.
b. Secondary liability:- The liability of the Surety is secondary i.e. the
surety is liable only if the principal debtor fails.
iv. Distinct promise to pay:- There must be a distinct promise weather oral or
written by the surety to pay the debt, in case of default committed by the
principal debtor, creditor and surety.
v. Legally enforceable:- The liability must be enforceable legally. This contract if
it is not express, is always implied, it should be time – warned.
vi. Consideration :- SEC( 127) Anything done or any promise made, for the
benefit of principal debtor may be sufficient consideration to the surety for
giving the guarantee.
In other words, something done or any promise made for the benefit of
the principal debtor is presumed by law to be sufficient in a contract of
guarantee.
Illustration for consideration:- 1. A sells and delivers goods to B. C
afterwards without consideration, agrees to pay for them in default of B. The
agreement is void.
2. B request A to sell and deliver to him goods on credit. A agrees to do so
provided C will guarantee the payment of the price of the goods. C promises to
guarantee the payment in consideration of A’s promise to deliver the goods. This
is sufficient consideration for C’s promise.

2. Distinguish between :- Contract of Indemnity and Contract of Guarantee


CONTRACT OF INDEMNITY CONTRACT OF GUARANTEE
1. SEC124_ It is a contract by which 1. SEC 126_ It is a contract to
one party promises to save the other perform the promise or discharge the
from any loss caused to him by the liability of the third person in case of
conduct of the promisor himself or his default.
any other person.
2. There are two parties in the 2. There are three parties in the
contract of indemnity_ contract
i. Indemnifier(promisor) of indemnity_
ii. Indemnity holder(promisee) i. Creditor ii. Principal debtor
3.There is only on e single contract iii. Surety.

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between the indemnifier and the 3. There are three separate contracts
indemnified. which are as follows_
a. Creditor with the Principal debtor.
b. Surety with the Creditor
c. Principal debtor with the Surety.
4. Liability of the Indemnifier is 4. Liability of the Surety is secondary
primary and independent no while liability of the Principal debtor
secondary liability. is Primary.
5. The aim or goal is to reimburse 5. It provides a surety to the creditor.
the loss if any to the indemnified.
Thus the aim is to provide security.
6. Indemnifier acts independently 6. The surety acts at the request of
without any request of the Principal debtor.
indemnified. 7. There is existing debt or liability.
7. The liability of the indemnifier The performance of which is
comes into existence on the guaranteed by the surety.
happening of the contingency 8. Surety can sue the principal debtor
namely loss to the promisee. in his own name.
8. Indemnifier cannot sue a third
party for any loss in his own name.

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