CONTRACT OF INDEMNITY

CONTRACT OF GUARANTEE
DEFINITION AND EXPLANATION

CONTRACT OF INDEMNITY
It is 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. It is made in order to protect
the promisee against anticipated loss.

CONTRACT OF INDEMNITY cont-- There are only two parties involved i.e. the
person who promises to make good the loss
generally known as the indemnifier (promisor)
and the person whose loss is to be made good
called as the indemnified (promisee).

CONTRACT OF INDEMNITY cont-- There is only one contract between the parties.
There is an undertaking on the part of the
indemnifier to be answerable for the debt or
default of another.

CONTRACT OF INDEMNITY cont-- The liability of the indemnifier to the indemnified

is primary and independent.
This contract is for the reimbursement
(compensation) of loss.

CONTRACT OF GUARANTEE
It is a contract to perform the promise or
discharge the liability of a third person in case of
his default. It is made to enable a person to get
a loan or goods on credit or an employment.

CONTRACT OF GUARANTEE cont-- There are three parties involved i.e. the person
who gives the guarantee known as the surety,
the person in respect of whose default the
guarantee is given known as the principal
debtor and the person to whom the guarantee is
given known as the creditor.

CONTRACT OF GUARANTEE cont-- There are three contracts first b/w creditor &
principal debtor, second b/w surety & creditor,
third b/w surety & principal debtor.
The primary liability is of principal debtor and the
surety has a secondary liability. Which means
that the payment is to be made by the surety
only if the debtor does not pay.

CONTRACT OF GUARANTEE cont-- This contract is for the security of the creditor.

CONTRACT OF GUARANTEE cont--RIGHTS AND LIABILITIES OF SURETY.

RIGHTS
1. Right of subrogation (interchange): when
the surety has paid the guaranteed debt on
default of the principal debtor he is then
entitled to all the rights which the creditor had
against the principal debtor. The surety is
entitled to all the remedies which are available
to the creditor against the principal debtor

CONTRACT OF GUARANTEE cont--RIGHTS AND LIABILITIES OF SURETY.

cont--2. Right to securities: Surety is entitled to the
benefit of all the securities given by the
principal debtor to the creditor. The surety at
the time of payment can demand the securities,
which the creditor has received from the
principal debtor. Surety can recover the
securities only after making full payment. He
cannot claim the benefit of a part of the
securities if he has paid a part of the debt.

CONTRACT OF GUARANTEE cont--RIGHTS AND LIABILITIES OF SURETY.

cont--3. Right of surety when the creditor loses or
parts with the securities of the principal
debtor: if the creditor by negligence loses any
security held by him, or if the creditor parts
with the security, the liability of the surety is
reduced to the extent of the value of those
securities.

CONTRACT OF GUARANTEE cont--RIGHTS AND LIABILITIES OF SURETY.

cont4. Right of reimbursement (compensation)
from the principal debtor: a surety is entitled
to recover from the principal debtor whatever
amount, he has rightfully paid to the creditor.

CONTRACT OF GUARANTEE cont--RIGHTS AND LIABILITIES OF SURETY.

cont LIABILITIES
The liabilities of the surety are co-existent which
those of the principal debtor unless it is
otherwise provided.
Example: if A guarantees to B the payment of a
Bill of Exchange by C, the acceptor. The bill is
dishonored by C. A is liable not only for the
amount of the bill but also for any interest or
charges which may have become due on it.

CONTRACT OF GUARANTEE cont--DISCHARGE OF SURETY

Change in the terms of the contract: If the
principal debtor and the creditor make any
changes, without the consent of the surety, the
surety is discharged from the contract.

CONTRACT OF GUARANTEE cont--DISCHARGE OF SURETY cont-- Discharge by death of the surety: In specific
guarantee the surety is not discharged from his
liability on his death if the liability has already
occurred. But the death of surety operates as
revocation of a continuing guarantee as to future
transactions. The deceased suretys estate will
not be liable for any transaction after the death,
even if the creditor has no knowledge of suretys
death.

CONTRACT OF GUARANTEE cont--DISCHARGE OF SURETY cont-- Release or discharge of principal debtor: a

surety is discharged by any contract between
the creditor and the principal debtor, or any act
or omission of the creditor by which the principal
debtor is released or discharged.

CONTRACT OF GUARANTEE cont--DISCHARGE OF SURETY cont-- Compounding of creditor with principal

debtor: 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, discharge the
surety.