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U]@$H $H@H (C.A.-Final) (267 Points)

09 April 2011

i am confused in contract of indemnity and contract of guarentee .. plzz anyone clarify my doubts with few examples........

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CONTRACT OF INDEMNITY 

1)Section 124 of the Indian Contract Act 1872 defines a
"contract of indemnity" as 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.
e.g = 'x' contracts to indemnify 'y' against the
consequences of any legal proceedings which c
may take against B in respect of a certain sum of
Rs.200/=. 

2  There are two parties
to  the  contract  viz. 
the indemnifier   and  the
indemnity holder


3 The liability of the
indemnifier is primary

4 In the Contract of indemnity the liability of the
indemnifier  arises only on the happening of the contingency.

5 In the contract of indemnity the loss falls on the
indemnifier  except in certain special cases.

6 There is only one contract in case of contract of
indemnity i.e, b/w the indemnifier and indemnity holder.


CONTRACT OF GUARANTEE

1  Section 126 of the Indian Contract Act 1872 defines a
contract of guarantee is a contract to perform the promise
or discharge the liability of a third person in case of his
default”. The person who gives the guarantee is called the
“surety”; the person in respect of whose default the
guarantee is given is called the “principal debtor”, and the
person to whom the guarantee is given is called the
“creditor”.A guarantee may be either oral or written.

e.g, 'P' lends Rs. 5000/= to 'Q' and 'R' promises to 'P'
that if 'Q' does not pay the money back then 'R' will do so.
 
2 There  are three parties 
to the contract viz. the 
creditor, the principal 
debtor and the surety.

3 The liability of the 
surety to the creditor 
is secondary i.e, the surety is 
liable only if the principal debtor
fails to perform his obligation.

4 In a contract of guarantee there is an existing debts or
duty, the performance of which is guaranteed by the surety.

5 In the contract of guarantee the surety , after discharges
the debts owing to the creditor, can proceed against the
principal debtor.

6 In case of contract of guarantee there are three contracts.
a) contract b/w the principal debtor  and the creditor.
b) contract b/w the creditor and the surety.
c) contract b/w the surety  and the principal debtor.

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