Law of Contracts - ||

Prepared by:
Anil. K. Nair
Advocate
High Court of Kerala
&
Adv. Ajitha P. Nair
0471-2327390. 9947519239
6

Topic - I Indemnity
Definition of Contract of
contract
agreement enTorceable at law. A
AContract is an
species of contracts.
indemnity is a
of
with
Contract Act, 1872 deal
of the
Sections 124 and 125 of a Contract of
to be applicable in the case
Special provisions
Indemnity.

Definition
person
is a contract by which one
contract of indemnity
(A compensate any loss resulting
that he will
prom+ses to the other the promisor himself or
omission of
the act or
to the promisee by
of any other person)

indemnity is to protect the prom

of
The object of a contract
loss.
isee against the anticipated
of
124 of the Indian Contract Act defines contract
Section
 party promises
Indemnity as "a
the other from contract
by which
by
one
the conduct
of
the
to
Save
himself,
loss caused
or by the conduct of
to him
any other
person. "
promisOr
indemnify or make
Ihe
person who undertakes to
promisor and
the good
loss is known as or the person
whose loss is to bethemadeindemnifier
good is called the inde mnifie d oir prom.

isee.
A contract of indemnity shall be subject to all the general

principles of a contract. Thus, for a valid contract of

indemnity,
tne tollowing conditions should be satisfied.

competent to contract.
1. Parties to the contract should be
should have
a ontract of Indemnit the indemnifier (Promisor)
Indemnified
attaned the age of maiority and be of sound mind.
may be a minor or a lunati.

parties.
2. There should be free consent of the

3. The contract should be for a lawful consideration and

for a lawful object.

4. The contract should not be expressly declared to be

Void by any law in force.

Acontract of indemnity may be express or implied. An im

plied contract of indemnity can be inferred from the circumstances
of a particular case.

Examples
(a) 'X' sent some goods through a carrier from one place to an
2
 The original receipt was lost and X
delivery ofpromised
other.
the carrier from the that any loss
arising to goode to him witl be
compensated by him. It is a contract of indemnity
(b)'X and y' entered into a shop and Y said to the owner of the
shop "yOusupply the goods required by 'X, will see that you
paid". |t is a
contract of indemnity
are
(AIR 1929
Ladha Ram V. Ganda Mal Lah 388)
Mange
The seller of land promised to the buyer that he will com
pensate the buyer in casSe the title to the land is found to bo
defective. The court held that it was a contract of indemnity

R
Singh V. State of Mysore (AI 1973 SC 2440)
M. Sham that an employee who has executed a bond
court held
The particular period is a contract of in-
master for a
serve the
case the employer sent the employee to a for-
to
demnity. In this
training on scholarship. The employee executed
cOuntry for
eign undertaken to serve the employer for a particu-
a bond
and has
case of failure, to compensate the employer. It
and, in
lar period given by the employee was a contract
promise
held that the
was
of indemnity.

ndemnified
Rights of the Contract Act, the indemnity
125 of the
By virtue of section rights against the promi
the following
holder (indemnified) has
sor (indemnifier).
the
damages he may have to pay to
all
(i) He can recover has
matter for which the indemnity
of the
ra party in respect
been given.

3
 which he
He is ontitled for all costs of suit may
paty Ths will be available only if the
have to
pay to tho thid
Onditions ae satis fied in bongng or defending the Suit following
He acted under the authority of the indemnifier
(a)
(b) He did not act in contravention of the orders of
the indemnifier.

(c) He acted in such a way as a prudent man would

act in his own case.
(1) He is also entitled to get all sums paid by him on a
compromise of such a suit. This will be available only if -

(a) He acted under the directions of the indemnifier.

Or

(b) He acted as a prudent man would act in his own

case and without contravening the orders of the
indemnifier
Or

(c) If the promisor authorised him to compromise the

suit.

4
Topic - I|
Jefinitionn off
Contract of Guarantee
26 of the
as
indian
aContract ta Contract Act detines a
thirdperson Lnpertorm
case of hispromise or Contract
the
detault" discharge
--2erson who gives the
Quarantee is
:2rantor The person in respect of Known as
the whose defaulttheSurety
the guar-
Sen s known as
Principal Debtor and the per-
guarantee is given is
the known as the
Creditor'.
enter a shop. Y ays to the trader, supply the
lwill'
E2ired to X if he does not pay. It is a
contract of
-: primary iiability is with X. and the secondary li-
tne

Rs. 1000/- to Z and guarantees that

y to lend
Xecuests
and on Z's failing
amount within a specified time
ecay the guarantee.
to Y. It is a contract of
himself pay
2 e will

xpress or implied. It may

guarante e may be
4 c0ntract of England a guarantee must be in
written. But in
oral or
:e et-er
signed by the guarantor.
sand

essentials of a valid guarantee

the
Tre 'o owing are

Debt recoverable from the Principal

There shouid be a
Debtor
given is known as
Princi
guarantee is
The debt for which
there is no principal debt, there can be no valid
Da ebt" If
 wnis 191 Min sr 's Dss1
DOr -
1 t s D e a - 5 1 e m nDrs Onirac:

annotlaim morey from

Credter
It
t s 3warantor in t e vnt througn
noprimcipai ett recorerable
1S. i fact

Shripat (1894) 19 Bom 697. the Bombay

F3ut i Kashiba v. knowinglyguaranteed
minors debt was
HIGh our heid that if a ebtor.
liabie as a principal
IG Sursty should be heid

(1947) 1 KB 106. the En

In Courts & Co. v. Brown Lecky for a debt
auarants6 has been given
Gish Court held that if a
ln England a loan
ontr#cted by a ninor, the surety is not liabie.
ank to an infannt is vo1d under
section 1 of the In
ria by A
debt. Thus
fants slisf Act, 1874 Thus thers is no recoverable
Guarntor f suh a loan, if the fact of infancy is known to all
partis, a firiot bo ria Gliabis in an action on the guarantee.

Thers should bs lawful Consideration

A9ntract of guarantee is a spsGies of contract, and it
,atd 9l6 h upportsd by lawful consideration. A guarantee
ntht .onsieration is void.
 G6oio 127 of th6 Indiar
tny lono,
Contract Ac! Bny
made, for tho henofit of the principal
tobto, Way o stliotot Gonsidoration to the surety for giving

Examplos sell and deliver to him

roquosts 'A' to goods on credit
'B'
so, provided 'C' will guarantee the pay
() to do rnent of
agro0s
'A' tho go0da ' ' oromisGs to guarantee the payment in
prico of prormise to deliver the goods. This is a suf-
tho
considoration of A's
promiss
considoration for C's
ficiont
delivers goods to B. C afterward requests Ato
and
sells
the debt for a year, and promises that if he
(2) A for by B. A agrees
forboar to sue B
them in default of payment
Will pay for sufficient consideration for the
a
doos so, C requested. This is
forbear as
to
promise. without con-
to B. C afterwards,
delivers goods default of B. The agree-
sells and in
(3) A pay for them
agrees to
sideration,
ment is void.
basis
cre dit, on the
goods are sold on consider-
given, or sufficient
If a loan is surety, that is
given by the
been given without
guarantee has already
of a guarantee. If a loan the creditor re
due, if
ation for the has beco me
and after payment
the basis of a guaran
quarantee debtor On
the principal consideration
suing sufficient
frains from that would be
a
by the surety,
a past debt would
tee given guarantee given for
the guarantee. But a
for
be void.

7
 A
Quarante
Concealment
virlue of
e Io invalid Obtatned by Misrepresentation

antee 0Cion L4p o he lndian Cunu act Act,

tor oroblained
of he wilh his
by
means of misropro sonlation nade by
a
thho guar
cGd
knowledgoinvalid
tho Act,lransaction,
a is
and as5ent, ConCornimg a nateriat
So als0, by virlue of section
143 o
ing
silence guaranteo
as to a
obtained by the creditor by neans of
matorial
circumstance 15 invalid. koep
ILlustrationsongages
to
(a) A
B as clerk to collect money for him.
acGOunt
upon
for
him to some security for his duly accounting
of his receipts, and A, in consequence
B
fails,
calls
guarantee forfurnish
C gives his
B's duly A does not inform
previous conduct. accounting B afterwards makes default. The
C with B's
invalid. guarantee is
(b) A guarantees to C payment for iron to be Supplied by
him to B to the amount of 2000 tons. B and C have
agreed that B should
pav five rupees per ton beyond the
privately
price, such excess to be applied in liquidation of an oldmarket
debt.
Ihis agreement is concealed from A. Ais not liable as a surety.

In London General Omnibus Co. v Holloway

(1912) 2 KB
72, the defendant was invited to give a guarantee for the
fidelity
of a servant. The employer had earlier dismissed him for dishon
esty. This fact was not diisclosed to the surety. The servant com
mitted another embezzlement. The surety was held not liable.

8
 Topic- I I
pistinction between Indemnity and
tee'
Guaran-
ar
di cotacI of Tndemnity there are two parties
(1)indemnifier (promisor), and
) (2)
art
ale: indermnified (prom
of They
is0e).

Contract of Guarantee there are three parties

In a Principal Debtor, and (3)
(1)
Creditor, (2) Surety
are:
They
Contract of Indemnity, there is only one contract,
S
In a indemnifier and the indemnified.
S 2. the
between
i.e.,
contracts in a Contract of Guarantee. They
three
There are

are.
principal debtor and the creditor;
between the and
(a) and the surety;
creditor
between the (lt is an
(b) surety and the principal debtor
between the
(c) implied contract).

liability of the indemni-

Contract of Indemnity, the
In a independent.
3)
and
fier is primary
Guarantee the surety's liability is sec-
In a
Contract of
principal
ondary or collateral. It arises only on default of the
debtor.

Contract of Indemnity, the liability of the indemni

4) In a
fier arises only on the happening of a contingency.

9
 ltabiit
the
Gatantep.
In a ConttactI of
contingent but subaisting teimbur.

Indemnityis
adolo
ho
nement
5) A Contact of
of loss. provide
made to
Guaranteeis advance.
necessary
A Contract of against his
security to the creditor

Topic -IV Guarantee

Different Kinds of
under the following heads
classified
The guarantee may be

(1) Retrospective Guarantee. existing debtt or obliga-

for an
Aguarantee which is given given for an
guarantee. A guarantee
tion is called retrospective consideration.
of
existing debt is void for want

(2) Prospective Guarantee

given for a future debt or obligation is
Aguarantee which is
quarantee. Such a guarantee shall be valid.
called prospective

(3) Fidelity Guarantee

for the good conduct or
honesty
A guarantee which is given
a person employed in a particular
office is called fidelity guar
of
antee.

(4) Specific Guarantee

A specific or simple guarantee is one which extends t0 a
single transaction or debt.

I0