Contract and Indemnity

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  • Topic: Contract, Surety, Statute of frauds
  • Pages : 10 (3944 words )
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  • Published : July 2, 2012
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CONTRACTS OF INDEMNITY
Definition
Section 124 of the Contract Act defines a contract of indemnity as a contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. P. contracts to indemnify Q against the consequences of any proceeding which R may. take against Q in respect of a certain sum of Rs. 200. This is a Contract of Indemnity: P is called the indemnifier and Q the Indemnity-holder. Characteristics

Characteristics (or the requisites) of a Contract of indemnity are as follows : l. A contract of guarantee must satisfy all the essential elements of a contract. For example, the object must be lawful, there must be free consent etc. 2. The Contract may be express or implied. An express contract is by word or by writing. An implied contract of indemnity comes from the circumstances of the` case or the relationship between the parties. 3. Section 69 implies a promise to indemnify

CONTRACTS OF GUARANTEE
Definition
A contract of guarantee is a contract to perform the promise or discharge the liability, of a third person in case of his default.-Sec. 126. P lends Rs. 5,000 to Q and R promises to P that if Q does not pay the money R will do so. This is contract of guarantee. Q is called the Principal Debtor, P the Creditor, and R the Guarantor or the Surety. Classification

Contracts of guarantee may be of three types :
(1) for payment to the Creditor to the Principal Debtor by the Guarantor ; (2) payment of price for goods sold, and
(3) Fidelity guarantee
i.e. to discharge the liability of a person for good conduct of a service-holder. A contract of guarantee may be for
(1) a future debt or obligation or for
(2) an existing debt.
A guarantee can also be
(1) a Simple Guarantee or
(2) a Continuing Guarantee
Essentials of a Valid Guarantee
1. A contract of guarantee must satisfy all the essential elements of a contract. (For example, the object must be lawful ; there must be free consent etc.) But the following points are to be noted. 2. A contract of guarantee may be either oral or written. ¬Sec 126. 3. In a contract of guarantee there are three parties i.e., the creditor, the principal. debtor and the surety. All the parties must join the contract. 4. In a contract of guarantee, the primary liability is that of principal debtor. The liability of surety arises only when there is a default of the principal debtor. Therefore, the liability of the surety is secondary. 5. in a contract of guarantee the principal debtor may be a minor. In this case the surety is liable to pay even though the minor may not be. The contract will be enforced as between the surety and the creditor. 6. Consideration : In a contract of guarantee, the consi¬deration received by the principal debtor is taken to be sufficient consideration for the surety. “Anything done, or any promise made, for the benefit of the principal debtor may be sufficient consideration to the surety for giving guarantee.”-Sec.127. Examples : (i) B requests P to sell and deliver to him goods on credit. P agrees to do so, provided C will guarantee the payment of the price of goods. C promises to guarantee the payment in consideration of P’s promise to deliver the goods. This is a sufficient consideration for C’s promise. (ii) P sells and delivers goods to B. C afterwards requests P to forbear to sue B for the debt for a year and promises that if he does so, C will pay for them in default of payment by B, P agrees to forbear as requested. This is a sufficient consideration for C’s promise. (iii) P sells and delivers goods to B. C afterwards, without consideration agrees to pay for them in default of B. The agreement is void. Contracts of Guarantee which are invalid

A contract of guarantee is invalid in the following cases :
1.misrepresentation : Any guarantee which has been obtained by means of misrepresentation mode by the creditor, or with his knowledge and assent,...
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