Page 38 - 01. Indian Contract Act, 1872

INDEMNITY & GUARANTEE

Indemnifier - The person who promises to make good the loss.
Indemnified or Indemnity Holder - The person whose loss is to be made good.
Eg: Contract of insurance etc. (except life insurance)

Modes
(i) Expressed
(ii) Implied

Essential Elements of Contracts of Indemnity
i) All essential elements of a valid contract must be present.
ii) A loss should be incurred or loss has become certain.
iii) Its purpose is to protect the indemnity holder against any loss.
iv) It must specify that the indemnity holder is protected from loss caused due to;

a) action of the promisor himself
b) action of any other person,
c) any act, event or accident which is not in the control of parties.

Rights of Indemnity Holder (Sec. 125)
(i) Right to recover damages
(ii) Right to recover costs
(iii) Right to recover sums paid

Contracts of Guarantee (Sec. 126)
It is a contract to perform the promise or discharge the liability incurred by a third
person in case of his default.

Parties to the contract

(i) Surety- The person who gives the guarantee.
(ii) Principle Debtor- The person in respect of whose default the guarantee is given.
(iii) Creditor - The person to whom the guarantee is given.

Essential Elements of Contracts of Guarantee.
(i) Must have all essentials of a valid contract

EXCEPTIONS:
(a) Consideration received by the Principal Debtor is a sufficient consideration to the
surety for giving the guarantee.
(b) Contract is valid even if the principal debtor is incompetent to contract.

38