 Acc. To sec.

124 of Indian contract

act—A Contract by which one party
promises to save the another from
losses caused to him by the conduct
of the promisor himself or by the
conduct of any other person , it is
called a contract of indemnity.
 The person who promises to protect
another---indemnifier.
 The person who is so protected is –
indemnity-holder.
 Suppose, K contracts to L. According to which
K has to sell a plot to L after 6 months. A
week later L approached K and insisted on
selling him the same plot to him(L). Now, L
promising to compensate for all loss
occurring to K, due to the selling of the plot.
Here, the contract forming between K and L is
called Indemnity,

 Identify Indemnifier and Indemnity Holder

1. Essentials of a valid contract.
2. Indemnifier promises to save indemnity holder
from the loss caused to him by the conduct of the
promisor, or by the conduct of any other person.
3. Contract may be expressed or implied.
4. Liability of indemnifier commences when the
indemnifier suffers some loss according to the
terms and conditions of the contract.
5. Contracts of insurance are also covered in this.

QUESTION Life Insurance is not covered under

Indemnity Act
Section 125 states rights ---
1. Claim for damages.-SEC 125(1)
2. Claim for cost of suit.-sec125(2)
3. Recovery of sums paid under conditions of
compromise.-sec125(3)
 Rights under doctrine of subrogation.
 To sue against third party after indemnifying
the indemnity holder.
 Not to compensate for losses not covered
under con. Of indemnity.
 Acc. To sec. 126 of I.C.Act-A contact of
guarantee is a contract to perform the
promise or discharge the liability of a third
person in case of default.
 PARTIES—
 surety,
 principal debtor,&
 creditor.
 Absolute and conditional
 Retrospective and Prospective Guarantee
 General and Specific Guarantee
 Limited and Unlimited Guarantee
 Continued Guarantee
 Three parties.

 Three contracts.

 Secondary liability of surety.

 Existence of principal debt—enforceability by law.

 Consideration-no need for separate consideration.

 No misrepresentation or concealment.

 Contractual capacity of parties

 Surety after contract
 In general circumstances the liability of surety
arises only in case of default of Principal Debtor so
his liability is secondary.

 the liability of surety is co-extensive with that of

principal debtor—if liability of Principal Debtor
reduces then surety’s liability also reduces.

◦ when creditor recovers a part of his loan from property of

principal debtor.

◦ when liability of Principal Debtor reduces by order of court.

 If due to some reasons the Principal Debtor cannot
be held liable , still surety can be held liable in
following situations—
 If Principal Debtor is a minor
 If Principal Debtor is declared insolvent.
 If liability of Principal Debtor . has become time-
barred.
 If creditor delays in filing suit against the debtor.
---moreover, in certain cases a surety can restrict or
limit his liability if he wants to do so he can also
restrict the amt. of liability.
 By revocation of contract of guarantee—only
for future transactions ,he still remains liable
if liability arises before giving notice.
 By surety’s death---the estate of deceased is
liable for transaction which has already taken
place.
 By novation.
 By variance in the terms of contract.
 By release or discharge of Principal Debtor.---but
if due to operation of law Principal Debtor is
discharged, say on insolvency, surety is not
discharged.
 Agreement with Principal Debtor---regarding
giving more time,not to sue against him,without
getting consent of surety.
 By creditor’s act or omission imparing surety’s
remedy.—harming surety’s interest.
 By loss of security by creditor.
 By invalidation of guarantee---obtained by mis-
representation,fraud,or in case of refusal of co-
surety.
 Rights against debtor-
 Right of subrogation.
 Right to be indemnified.
 Rights against creditor-
 Right to securities.
 Right to get information about debtor’s
conduct.
 Right to set off-if he has to settle his own
amt. from creditor.